Is Delaying Financial Independence Ever Worth It?

Is Delaying Financial Independence Ever Worth It?

Achieving financial independence (FI) is a big deal. Once you reach FI, you no longer have to work for money and can do whatever you like, at least in theory. However, many of the people that focus on achieving financial independence do so by adopting a mindset of reaching FI as fast as possible. They want to try to escape the rat race and finally live life. But is that the right way to achieve FI?

The answer will depend on your particular situation, but I strongly believe there are good arguments as to why you may want to delay FI.

A few weeks ago, someone posted in the Choose FI Facebook group asking if it would be worth it to drop their hours at work from 30 hours a week to 20 hours per week to spend more time at home with their kids. The person had two young kids and they felt like they were missing out on this portion of their lives. The person’s 10+ hour shifts meant missing bedtimes and other activities on a regular basis.

Unfortunately, most people achieve FI after their kids are older or even fully grown. Few people have the luxury of being FI when their kids are young. So, if you’re trying to achieve FI as fast as possible, there is a good chance you’d miss out on many of life’s events with your young children as you put earning income as the top priority.

While the answer will be different for everyone, I believe this is one example of when it might make sense to delay FI in order to live life in the present. In fact, my wife and I recently made a somewhat similar decision.

Our similar situation and how we handled it

My wife is a registered nurse and used to work three 12 hour night shifts per week. During her work days, she only got to spend about an hour or two per day with our family after working, commuting and getting ready for work. She felt she was missing out on a big chunk of our son’s early years. Thankfully, her work offers an option to work on an extremely part time basis. If we could make our finances work, she could in theory work as few as three 12 hour shifts per six-week period.

I work from home as a blogger and freelance writer, so I can only reliably get work done while my wife is home or my son is sleeping. If my wife is home more, I could theoretically earn more money. We ran the numbers and felt comfortable that we could cover our expenses if my wife switched to the extremely part time status, but we wouldn’t be able to save as much as we had been saving for retirement.

Ultimately, we decided sacrificing saving for retirement for a few years was worth the extra time my wife would get to spend with our son during this portion of his life. When she switched to working fewer days, something unexpected happened. I earned more money than we had projected due to the additional time I now have to work on my business. While we still aren’t saving quite as much as we did before my wife cut her hours back, the decrease in our savings wasn’t nearly as large as we predicted.

Of course, not everyone can afford to make the decision my wife and I have made. Sometimes you must continue working even if you don’t want to because the negative effects would be too large.

Here’s how you can take an objective look at your situation to see if delaying FI might be worth it to you.

Run the Numbers

The first thing you should do if you’re considering delaying FI, whether it be from taking time off from work or for any other reason, is run the numbers. Since you’re working toward FI already, you probably have a couple spreadsheets that calculate when you’ll reach FI. If you don’t, there are plenty of spreadsheets or calculators you can use to do this.

Rather than continue toward FI based on your current scenario, see what would happen if you changed your calculations to achieve your goal. In our worst case scenario, we cut my wife’s income down for four years and reduced our savings rate to zero but we would still earn enough to cover our monthly expenses. Even in this scenario, we’d only delay our FI date by two to four years thanks to our current savings. To us, that wasn’t a big deal to get some extra time with our son now.

Consider Future Scenarios

While you have an ideal scenario in mind, things won’t always turn out how you expect. You may not be able to return to the workforce full time when you imagine. Alternatively, you may have to take a pay cut or your advancement within your field will have slowed down.

Make sure you account for all of these potential options and run the numbers to see how much speed bumps like these could affect your decision. My wife works in a very high demand field and her part time work will keep her skills up to date so we don’t foresee any major issues with our plan that could delay our FI date further.

Is the Delay Worth the Benefit?

Once you’ve run the numbers for your ideal and less than ideal scenarios, you have to decide if the delay to your FI date is worth what you get now. We were willing to make the sacrifice to our FI date to spend more time watching our son grow up. In the few months since we’ve made the decision, it’s become clear it was the right choice. It also helps that my business is making even more money which has allowed us to still save for FI at a decent rate. This means our FI date won’t be as delayed as we thought it would.

Final Thoughts

In the end, you’ll have to decide whether delaying financial independence is worth the benefit you gain. For some, spending more time with your kids when you’re young or traveling around the world before you have kids might be worth delaying FI by a couple years.

For others, the extreme desire to escape the rat race may be worth forgoing additional time in the present. There is no wrong answer. It’s your life. Just make sure you aren’t blindly following the path to FI as fast as possible without considering the alternatives, first.

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Is Delaying Financial Independence Ever Worth It?

How To Buy Real Estate In A Roth IRA

How To Buy Real Estate In A Roth IRA

Did you know you can actually buy real estate in a Roth IRA? And it’s completely legal too, not the least of which since you can hold just about any asset in an IRA account. Some real estate promoters seriously pitch this option. And while it is certainly possible, you need to be fully aware that it's also a very complicated process.

We're going to do a high-altitude report on how to buy real estate in a Roth IRA. But be advised this is not the kind of investment strategy you should ever enter on the basis of an online article. The number of potential pitfalls, and the severity of the IRS penalties, make this a very serious step. For that reason, you absolutely must consult with a knowledgeable CPA or tax attorney before moving forward. With that rule firmly in place, let's take a look at the basics of how to buy real estate in a Roth IRA.

Why Hold Real Estate in a Roth IRA?

At least since the 1970s, real estate has rivaled the stock market in investment returns. In some decades, one has outperformed the other, but on balance it's been a tight race. Either way, a large number of people have become millionaires by investing in real estate. The reliable performance of real estate makes it an excellent long-term investment.

There are tax breaks that come with investing in real estate. Depreciation is an example. It's a paper expense, that can be used to offset real income, giving the owner tax-free income. Another is the long-term capital gains tax advantage. If investment real estate is held for more than one year, and sold at a profit, the tax rate is between zero and 20% for most tax payers. But can you imagine holding investment real estate in a Roth IRA, where it will be fully tax-deferred–until you turn 59 1/2, when it will become completely tax-free? Whether tax-deferred or tax-free, neither the profit from rental income nor the windfall from capital gains will create a tax liability. Now think about how powerful that advantage will be over many years. That's reason enough to consider holding real estate in a Roth IRA.

The Diversification Angle

Still another advantage is that real estate represents a true diversification. Most retirement plans are loaded up with paper investments. That includes stocks, bonds, mutual funds, exchange traded funds, and certificates of deposit. Those are all solid investments, but they’re also intangible. It often makes sense to include some type of tangible asset in a retirement plan, particularly an IRA. They often perform better than paper investments, particularly during times of high inflation. Precious metals are an excellent example of a tangible investment. But the ultimate tangible investment is real estate. That's because it's not just an investment, but it also has a practical purpose. It provides shelter either for residential tenants or commercial businesses. That tends to give it staying power over the very long term.

Adding this kind of tangible investment to a portfolio of paper assets achieves a much greater level of diversification.

Buying Real Estate in a Roth IRA–The Downsides

No discussion of buying real estate in a Roth IRA is remotely complete without a solid discussion of the complications–and there are plenty. The first downside you'll encounter is finding an IRA trustee who will hold physical real estate in a Roth IRA account. If it's a trustee that has a well-known name, rest assured they won't be a candidate. Real estate related IRAs are a special breed, and you will need to work with trustees who specialize in the field. There are only a handful, and we’ll list a few shortly.

Second, because of the high price of real estate, it will be very difficult to diversify within the asset class. Most investors will do well to hold one or two properties, especially in the early years, unless you’re rolling over large sums from other retirement plans. This will limit your ability to spread your investment–and your risk–across several different properties, in a way similar to how you diversify across many securities in each paper asset class you hold in your portfolio.

Third, IRS rules on holding real estate in any type of IRA are stiff. If you violate even one of them, the IRS can completely invalidate the IRA. They can force a distribution subject to ordinary income tax and the 10% early withdrawal penalty. This is a major reason why the vast majority of IRA trustees don't accommodate physical real estate.

Specific Rules for Holding Real Estate in a Roth IRA

Here are some of the rules surrounding holding real estate in an IRA account:

  • You cannot be personally involved in the management of a real estate IRA. The account must be managed by the trustee. You and your real estate IRA will be completely distinct entities.
  • You cannot receive any benefits from the property held in the IRA. That means you can’t live in it, your family can’t live in it, and you can’t run a business out of it. There can be absolutely no personal use of the property.
  • The IRA cannot purchase property that is in any way connected with you or your family.
  • All financial activity, including both income and expenses, must go into or originate from the IRA. You cannot receive any income or pay any expenses for the property held in the Roth IRA.

In short, you can’t use real estate in a Roth IRA to build a personally directed real estate empire.You can only make the choice to start a real estate IRA, decide who the trustee will be, then fund the account. All management of the assets held in the account must be handled by the trustee. Violate that rule, and really bad things can happen.

How to Buy Real Estate in a Roth IRA

As you’ve probably already guessed, holding real estate in a Roth IRA is not nearly as simple as traditional paper assets.

First, you have to open a self-directed account with a trustee that specializes in real estate IRAs (see next section). Once you've made that selection, you'll set up your account much the way you would any other self-directed Roth IRA. Once again, you cannot be personally involved in the real estate investment process. You will direct the Roth IRA trustee to invest in real estate, fund your account, then step back from the entire process.

Any real estate held within the Roth IRA must be legally titled in the name of the IRA account. It cannot in any way be connected with you personally (yes, I'm repeating that point, because it's absolutely critical with real estate IRAs). You will have to complete forms specific to the IRA trustee, directing them to make property purchases within the account.

The funds to invest in real estate must come from the account. You will not be able to supplement the purchase or property management with funds from unrelated accounts. All income collected on the property must come into the IRA–not a single nickel can come to you personally. Similarly, all expenses must be paid out of the IRA account. Any profits generated by rental income must be retained within the account.

Selling Property Held in a Real Estate Roth IRA

When it comes time to sell property, your only input will be to approve the sale price. This is similar to the process of approving the sale of a stock at a certain price in a conventional IRA account. However, all proceeds from the sale of the property will once again be retained within the IRA account.

All records pertaining to each property held in the IRA are also retained by the trustee. As you can see, it's almost ironic saying that it's a self-directed account. Other than selecting the trustee, funding your account, and agreeing to the sale price of a property, there's really nothing self-directed about it. All activity and financial transactions are handled by the trustee.

IRA Trustees that Specialize in Real Estate IRAs

As already noted, very few IRA trustees will allow you to hold real estate in your Roth IRA. Not only is the process complicated, but the trustees themselves may also face various penalties for failing to get it right.

Below is a list of five trustees known to handle real estate IRAs. Please understand we are not making recommendations for any of these companies. Rather, we are offering this list as a starting point in your search for a suitable trustee.

Be sure to research each company through various third-party rating services, such as the Secretary of State, both in your state and the company's home state, as well as the Better Business Bureau, Yelp, and other sources.

Also, thoroughly investigate what the company offers. You'll need to know not only the degree of expertise they have in real estate IRAs, but also the specific processes they employ, and the fees they charge.

The five trustees known to specialize in real estate IRAs includes:

How Mortgage Financing Works with Real Estate in a Roth IRA

If investing in real estate in a Roth IRA is a complicated process, it's even more so if you attempt to borrow money to do it. It's not that borrowing money to purchase real estate in a Roth IRA is impossible, but there are hurdles.

Once again, we need to stress that you don't take this step without first consulting with either a CPA or a tax attorney. You should be aware that traditional mortgage financing for real estate is not available within an IRA account, traditional or Roth. This has much to do with the fact that any financing connected with an IRA account must be “non-recourse”. These are loans traditional mortgage lenders don't like to make.

Under a non-recourse loan, the lender will be limited to the real estate only as collateral for the loan. Unlike a typical real estate mortgage, the lender won't be able to pursue the other assets of the either the IRA account or of the account owner. And no mortgage lender will grant a loan without your personal guarantee, which you cannot provide without violating the IRA.

To finance the property in a Roth IRA, you must work with a non-recourse lender. Naturally, those are few and far between. They also have very stiff requirements. For example, a non-recourse lender will require a large down payment, typically 50% or more.

And since you will not be able to provide a personal guarantee, the lender will need to be satisfied that the property generates sufficient cash flow to meet the monthly mortgage payment, as well as utilities, repairs, maintenance and a reasonable estimate for a vacancy factor (times in which the property is without a tenant). And of course, the loan will be the obligation of the IRA, not of you personally.

A Financed Property in a Roth IRA May Be Required to Pay Tax

That leads to an even bigger complication. If you take financing, your real estate IRA may owe tax on unrelated debt-financed income (UDFI). The tax will be due on the percentage of the property value covered by the loan. So if 50% of the property value is financed, then 50% of the profits will be subject to the tax.

The IRA must then file a tax return (IRS Form 990-T). It will file as a trust, and pay trust tax rates, since an IRA is in fact a trust. If you don’t want to go the financing route (and be subject to the UDFI tax), you do have some other options.

The most obvious, of course, is to fund the property purchase completely out of the funds from your Roth IRA. Now it will be close to impossible to do this if you’re funding your IRA at the normal contribution rate of $5,500 per year. The alternative will be to do either a rollover of funds from another Roth IRA, or a conversion of plan assets from non-Roth accounts.

Still another is to work with one or more partners on the same property. Each partner will have an undivided interest in the property.

If Actual Real Estate Scares You–REITs to the Rescue!

The acronym for real estate investment trusts, REITs are a lot “cleaner” to own than physical real estate. They’re also much easier to hold in a Roth IRA. You can hold them in much the same way you do stocks and other paper investments. The returns on REIT have also been impressive for many years. For example, the average return between 1977 and 2010 was 12%, and has been about 9% since. REITs are a good way to invest in real estate in a Roth IRA, and with a lot less complication and risk.

So if you're thinking about holding real estate in your Roth IRA, first sit down and have a long, deep discussion with a CPA or tax attorney. Then consider if you have both the funds and the temperament to invest in physical real estate. If that all checks out, contact one of the real estate IRA companies that specialize in that investment, and move forward. But if you're not willing to endure the complication and the risk–
but you still want to hold real estate in your Roth IRA–take a good, hard look at REITs.

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How To Buy A Used Car

How To Buy A Used Car

One frequently touted tenant of the FI community is that you should never buy a new-to-you car if you can help it. Since most of us know that beyond safety and the ability to get you from point A to point B, cars are mostly status symbols on wheels that aren’t a great return on your investment.

Any new car that has bells and whistles or a fancy brand name are essentially mobile trophies that people use to brag about their status in life, whether or not it is rooted in reality. So, if you’re FI aligned and you’re simply trying to find a set of wheels that gets you where you need to go, (and safely so), read on.

Set a budget, then research thoroughly

As with anything, your budget should be a good starting point to inform all you do–and a good rule of thumb is that $7,000-$8,500 is about what you need for a good used car, and you’ll still have plenty of safety features and a good 100,000 miles before it needs to be put out to pasture. Of course, this may vary–but it's a good starting point.

If you have no idea where to even begin and aren’t already set on a specific make or model, check out and do your analysis in their Car Research section to learn more about what’s available. Here you can sort by MPG, user reviews, or even known issues with that model which wouldn’t be covered by a warranty.

As a person who personally drove a 2012 Ford Focus that was well known as the “problem child” of Ford for some time, take some time to thoroughly Google “X Make X Model Year known issues.”

My Ford Focus, before it was thankfully put out of its misery by my insurance company due to hail damage, had a serious transmission issue. I took it back to the dealership no less than six times, but the mechanics said there was nothing to be done.

Getting off the line, even with a light push of the gas pedal meant the whole car would shudder as it accelerated forward. Yes, you’ll want to avoid those well known issues when you buy used!

Go to a dealership, but buy from Craigslist

If you’ve successfully narrowed down your search to one or two cars that fit your needs for MPG, family size, or really, whatever cool factor you’re willing to pay for–you may want to take some time getting familiar with this car in person.

I’ve seen many personal finance bloggers recommend buying a car direct from the seller, as a middle man (used car dealer) will likely have a steep markup, and isn’t necessarily transparent about issues with the car either! You can run your own CarFax report before you buy using a VIN number, for about $39.99.

While you may want to buy direct from a seller, you can still spend some time visiting car dealerships to take a car for a test drive and spend some time with the type of car you’ll want to buy.

While a Craigslist seller will let you test drive, they probably don’t want you hanging out in their driveway for hours as you make a decision–so spend some time at a lot to get comfortable with the make and model.

Access, aim, pull the trigger

So, you’ve researched which car to buy–but if you were to look under the hood you’d have no idea what you were seeing. Before you go to buy a car, cozy up to a friend who knows his or her way around a vehicle and bring them along.

While a CarFax report will tell you a lot about the car’s history, a wise friend or family member can tell you about the car’s future. When you look–when will the tires need replacing? How does the transmission look? Was the car cared for and maintained? A car enthusiast will know how to spot red flags or areas of neglect under the hood and their careful eye is well worth the price of lunch or a six pack of beer!

When your savvy friend has given you the thumbs up, you can see if you want to negotiate off of the listed price. Being armed with facts of upcoming replacements or identified issues will help you get money off of the asking price–but be prepared to walk if you’ve identified big issues that even a few dollars off the top won’t solve.

If you’ve ever bought a used car, we’d love to hear from you to share more tips with the ChooseFI community to shop smarter and save money along the way!

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How To Save Money On Travel With The Right Credit Card

How To Save Money On Travel With The Right Credit Card

Earning miles and points from credit cards is the way to save big money on travel. But you'll need “right” card for you.

Be sure you aren't paying unnecessary fees or missing out on benefits. I'm going to show you have to save money when you travel by having the right credit card.

There's more to life than the Sign-Up Bonus

Getting a credit card sign-up bonus is like finding a pot of gold or winning the lottery. It's totally awesome, but the thrill soon dies down when next year's annual fee is due.

When picking the “right” credit card, you need one that will provide more value than a one-time boost to your collection of miles and points. I pay plenty in annual fees for my credit cards, but only when there is a real opportunity to save money on an ongoing basis.

Click Here To Compare Travel Rewards Cards

It now costs $30 to check a bag!

You've probably seen the news where all of the major airlines have now raised their baggage fees by 20 percent (from $25 to $30). This is a bit of highway robbery! Thank god my favorite airline, Southwest, still has the decency to offer two free checked bags.

If you're going to fly one of the other carriers, there are three main ways to avoid paying the fee.

  • Have Elite Status: No thanks, I'm not spending that much with any airline.
  • Fly in Premium Cabin: I'd love to, but even I don't have that many miles.
  • Have the airline's credit card: Having their card is like buying elite status.

You do have to be careful though because there's a big difference between airline credit cards. For example, if you're paying less than a $95 annual fee for your card, you probably don't have free checked bags as a benefit.

Free checked bag benefit varies by airline

And not every free checked bag benefit is the same among the airlines' credit cards:

  • American Airlines: The Citi AAdvantage Platinum Select ($95 annual fee) waives the checked bag fee on one bag each for you and up to four companions on the same domestic itinerary.
  • Delta Airlines: The American Express Gold Delta SkyMiles Credit Card ($95 annual fee) provides a free checked bag for you and up to eight companions on the same domestic itinerary.
  • JetBlue Airlines: The Barclays JetBlue Plus ($99 annual fee) offers a free checked bag for you and up to three companions on the same domestic itinerary.
  • United Airlines: The Chase United Explorer card ($95 annual fee) has the worst free checked bag benefit. Only you and one companion can get a free checked bag on the same domestic itinerary.

As you can see, the benefits vary widely among the different airlines. Most airlines have multiple versions of their cards as well, so review their benefits and choose wisely based on what is most important to you.

Excuse me, I'm on the list

Waiting in line sucks. I would say it is even more lame when you're getting ready to fly.

With most airline co-branded credit cards, you can get priority boarding ahead of many frequent fliers, even if it is your first time flying on that airline. How cool is that?

Even better is that some premium credit cards offer reimbursement of your Global Entry or TSA PreCheck enrollment fees. If you don't know what these are, you're in for a treat! Instead of waiting in line at security, TSA PreCheck lets you avoid the line, keep your shoes on, and skip the invasive search of your bags. Global Entry makes returning home from an international trip into a two-minute process instead of a 30-minute wait.

Click Here To Compare Travel Rewards Cards

Don't pay full price when buying food & drinks in the air

I don't buy many drinks or snacks when I fly, but my kids have different plans for my wallet. Just like at the theme park or professional sporting event, you are a captive audience when flying. And that means that the prices for drinks and food are many times higher than what you'd pay at the grocery or convenience store.

Luckily, cardholders of many airline credit cards can save 20 to 50 percent on food and beverages during the flights. Here are a couple examples:

  • American Airlines: The Citi AAdvantage Platinum Select offers a 25 percent discount on food and beverages.
  • Delta Airlines: The American Express Delta Gold card give a 20 percent discount on food, beverages, and audio headsets.
  • JetBlue Airlines: The Barclays JetBlue Plus card gives a 50 percent discount on food and beverages.
  • United Airlines: The Chase United Explorer Card offers a 25 percent discount on food, beverages, and in-flight WiFi.

Free night? Yes, please!

It's not just with airlines that you can save a bunch of money if you have the right credit card. With the major hotel chains, you can expect to get a free hotel night just for renewing the credit card or when you spend a little bit of money each year.

True, the hotel reservation isn't completely free. But, if you are going to travel anyway, wouldn't you rather buy your room at a discounted price? Even average rooms can be $200+ a night in most major cities. With my hotel credit cards that offer free nights, I cash them in and save at least 50 percent when comparing the cash price vs. what I'm paying in annual fees.

Free hotel night upon renewal

Here are a few of the credit cards that offer free hotel nights just for paying the annual fee:

Free hotel night when you spend

And you'll earn free nights when spending on these credit cards:

  • American Express Hilton Ascend ($95 annual fee): One free weekend night that can be used at almost any Hilton property around the world when you spend $15,000 in a calendar year.
  • Chase World of Hyatt Credit Card ($95 annual fee): You'll receive an additional free Category four night when you spend $15,000 during your anniversary year.
  • US Bank Radisson Rewards ($75 annual fee): Earn up to three free nights each year. Get one free night for every $10,000 you spend in your anniversary year.

Just say No to car rental insurance

Rental car insurance is something that I don't like to pay. The fees are outrageous and the coverage can be limited. Most travel credit cards offer secondary insurance, which means that they'll cover whatever the insurance you have back home doesn't. But there's a better way. Two, actually.

Some premium credit cards offer primary rental car insurance. This means that they'll step in and cover any problems without involving your normal car insurance. Primary rental car insurance is a fantastic benefit, especially if you travel to places with dangerous roads, like when going snowboarding in the mountains.

American Express also offers wonderful rental car insurance at an affordable rate, and it is available on almost all of their credit cards. Instead of paying a daily rate, you'll pay one flat rate of $25 or less that will cover you for rentals periods up to 42 days. The coverage is even available worldwide with a couple of exclusions.

Don't pay Foreign Transaction Fees

Foreign transaction fees are a hidden tax that inflates the price of everything you buy in a foreign currency. If your card is still charging you this fee, it needs to be left at home whenever you travel.

So many credit cards waive the foreign transaction fee as a basic benefit. There is no reason you should be charged this three percent fee when making an international purchase.

Get the right credit card to save even more money

Yes, the credit card you have is probably pretty good. And it might even save you some money and have some cool perks. But are you paying any of these fees above when you travel? If so, it might be time to upgrade or add another credit card to your wallet.

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Forget Retiring Early–Go For A Fully Funded Lifestyle Change Instead!

Forget Retiring Early--Go For A Fully Funded Lifestyle Change Instead!

Fully Funded Lifestyle Change is different than FIRE (Financial Independence Retire Early) because it doesn't require “retiring”. A Fully Funded Lifestyle Change (FFLC) means saving up enough money to make a major change, such as starting a business, moving out of the country, or just simply spending more time with family.

If you consider that most people are approaching FIRE with the mentality that they will find something new to work on in retirement what they are really pursuing is the FFLC. If you aren’t grinding through a job just to reach FI, it’s likely that you would have the opportunity to retain the parts of your job that you like, and you, too, could pursue the FFLC instead of full on FIRE.

Plus, the benefits would be to reach your goal that much faster and get to fully enjoy your life that much sooner.

What Drove Our Change in Mindset

Since our daughter was born, I have felt the need to change the way my life was structured. Sure, I’ve always had the plan to retire early from work and pursue other goals. However, I never really quantified it before meeting with our financial planner. Instead, assumed when we reach 30x our expenses (3.33% withdrawal rate), my wife and I would have more than enough to never worry about money again. At that point, we could quit our jobs and live it up for the rest of our days!

Because of the new motivation of having a little one at home, I have come to realize that the time we have right now is more precious and valuable than time in the distant future. What if we could make a shift in our lifestyle? Allowing us a sustainable career that would provide the flexibility to enjoy time with our daughter, while also providing the income that we need to maintain our lifestyle. Yes, we would be sacrificing the years of completely not working. But on the other hand, if we’re enjoying our jobs, do we need to get out of them completely?

My wife works in our local school system as an instructional facilitator. In essence, she works with teachers on how to better present lesson plans, incorporate technology and analyze data to improve the students’ learning. This job is tailor made for her and she is really enjoying it. In addition, she is able to walk to work and the school day is from 8-[3:30]. It’s hard to beat that!

I, on the other hand, have a 45 minute commute which starts before our daughter wakes up in the morning. Given her bed time, I see her for about an hour a day during the week.

Additionally, where we live in the Washington, DC suburbs, isn’t the ultimate location for us. We would love to travel the world while we still have a young family. Also, we want to build a homestead on our property at some point.

What Does it Take to Reach FFLC?

Talking with our financial planner, Harry, got us thinking about what really mattered and how to accomplish it. Also, having the numbers to back up the conversation and provide confidence in our opportunities and choices, really provided value and clarity.

Harry calculated that our current nest egg of retirement accounts and taxable savings is sufficient to meet 200% of our retirement spending goals, starting at age 60. I chose age 60 because we will be able to pull penalty free from our tax deferred accounts at that time. That means we only need to conquer the next 29 years to get to that point! Additionally, we don’t need to save another dime to meet our goals in retirement.

The realization that we could spend all of our income for the next 30 years and still be fine in retirement is mind blowing. Of course, if we did spend all of our income for that period of time, our expenses would have grown so significantly that retirement at that level of spending probably wouldn’t work. With that in mind, and our current comfort with our spending, we can afford to reduce our income significantly. That provides a lot of opportunities for our family.

Looking at our finances, I determined that my wife’s income and benefits could more or less support our family. I figure I need to make about $10-15,000 per year to make ends meet. It would almost be hard to make less than that if I apply myself at all.

If we are able to change our careers to suit us and provide the current income that we need to meet our goals, we should be able to live happily for the next 30 years until we are able to pull from our retirement accounts. We won’t be able to sit on the beach 365 days a year at this point, but that sounds like it might get boring pretty quickly anyway. If our target is $75,000 per year, between the two of us we should be able to accomplish that easily, whether my work scales up and my wife’s scales back or vice versa. Finally, it’s very likely that we will still be earning more income than we need to live our lifestyle.

What If We Earn More Than We Need?

What would happen then? Well, given that we don’t need to save anymore, we will have flexibility there too. Maybe we save some of it and pull forward the ultimate retirement date by saving into a taxable account. Or, maybe we devote more of our earnings towards charitable giving. A distant third will be increasing our spending significantly.

We live comfortably now, but do keep a close eye on our expenses. I imagine we would enjoy spending a little bit more, or at the very least releasing the tight grasp on our wallets. I can’t imagine how we could increase our spending significantly however, and I don’t think I would get the same level of enjoyment out of it either.

How Can You Calculate the FFLC Point?

All jazzed up about this idea yet? There are a few calculators out there to figure out the amount of savings you need to fully fund your retirement. Some of these calculators are a bit simplistic. But, I received immense value from having this discussion with Harry (in addition to running through my own financial planning software of course!) In essence, you are calculating a present value of the retirement number to fund your retirement spending needs. The other variables in the calculation are the rate of return and the years of growth. One potential pitfall here is the impact inflation will have on your retirement spending. The second is that the present value that you are calculating is actually a future value if you are still in the saving phase. 

Unfortunately, I don’t have a robust tool available online that will help with this calculation. I’m sure there are calculators out there, or that some of the personalities in this community could create one. I may work on creating a Google Sheet that tackles this calculation. Please let me know if you've got one already in the comments below!

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