It’s been a year since I’ve provided an update on our path to Financial Independence. The world has continued to move forward as have we. Our situation has changed considerably in that time. As you’ll see the 4 Percent rule becomes a major question as does my opinion of it.
Rewinding the Clock to Former Financial Independent Updates
That last post from April 2017 asked if we were financially independent. At that time we had 17x expenses in non housing assets. Our house would have added another 5x annual expenses if I sold it. In other words we weren’t financially independent (FI) via the 4 percent rule without some major changes in our lives. Since I believe our life is currently tuned to what we value obviously making these changes is not something we should consider. So at least at the time of that post we weren’t truly in a scenario where the 4 percent rule was real.
Our Current Financial Independence Status
Things have changed since then. We now hold about 21x expenses in non housing assets. Furthermore we hold another 6x expenses in our house. Together that is 27x expenses, significantly more than the 4% rule. Now I will denote I have no intention of selling my house any time soon. This further emphasizes why I don’t consider our home as truly part of our net worth. So in some ways we are not truly meeting the 4 percent rule, yet..
Near Financially Independent
However sometime early next year we will pay off our home. The reduction of costs from that step alone will mean our non housing assets will then meet or exceed 25x expense, or 4 percent. So while I can’t say, based on my own measurements, we are FI from a 4 percent rule perspective, I can say with pretty much assurance we will be in a few months.
Our Plans Post Financial Independence
So will we revise forward our retirement date from 55 because we will soon be 4 percent rule Financially independent? In short, no. To understand the answer you must first read about my take on retirement and how I feel about my job. I still enjoy my job and am in no rush to leave work. I also still view retirement as not working. So if I were to retire with the 4% rule, I mean truly retire by my definition, I’d have to completely stop working.
Few Test the 4 Percent Rule
Many other bloggers talk about being retired per the 4% rule. But let’s be honest. Most of these people are not retired in respect to not working. They are retired from their career to finding new job opportunities where income is less important. They are not testing the 4% rules effectiveness. There is good reason for this.
The 4 Percent Rule Only Applies to 30 Year Periods
The 4% rule is tested statistically against history to last 30 years. That being said there is no guarantee anything is left after 30 years. At 35 I have a potential retirement of 60 some years. That means at 30 years I have another 30 year stretch to support. So imagine them as mutually exclusive terms. In that case after 30 years you have to have enough left in your accounts to support 4% from there. The reality is the 4% rule will have a success rate somewhere below 89% , perhaps far worse depending on your allocation, based on Early Retirement Now’s research. I don’t know about you but I wouldn’t stop working now with a 10% risk I’d end up eating dog food in retirement.
Small Data Set for FI at 4 Percent
Even worse, the 4 percent rule itself is based on just 118 prior periods of the American stock market. It’s a common statement in finance, past performance does not guarantee future performance. There are many possible scenarios where the 4% rule may not even hold. Low likelihood, but still very much possible.
I Enjoy My Job and Do Not Plan to Leave It
But back to my point about other bloggers. While they don’t meet my definition of retirement*, as noted prior the money becomes less important so they retire from their career. This implies they want to leave their career to find something else. I’ll be honest I enjoy what I do and don’t want to do anything else currently. So you won’t see me declaring myself as this form of retirement any time soon.
The Power of the 4 Percent Rule
However, while I’m not shutting down my career I do recognize the milestone. The reality is in most scenarios the 4% rule is sufficient to see you through over the next 30 years. That means even if it’s not enough to pull the plug completely, there are very few scenarios where we have anything truly to fear financially. Job loss? I’d have 30 years to figure it out.
Locational Independence and Financial Independence
This is why you’ve seen our recent movements towards locational independence. In a way this is the same thing as other bloggers leaving their careers, just in a different way. I don’t want to leave my career, but I want to hit the road. My place on the financial independence scale allows me to take on the risk of combining both my existing career and location independence. I am taking some steps in the interim to get there. My recent job change? All about getting into a role that is more able to support being mobile. It does this in a few ways:
- Most of the people I will interact with are not local. Even those who are local work remotely a few days a week.
- The skill set is easily transferable to post W-2 consulting should my employer ever disappear.
- And of course most importantly the work can be done from anywhere with nothing more then a computer, internet connection, and my brain.
More On Our Location Independence Plans
Beyond that we have decided the first phase of our locational independence will involve purchasing a small travel trailer. Something short in the 15-16 foot range at a moderate price point. Not to disappoint but unlike some truly inspiring bloggers we won’t be going on tour. Instead we intend to pick a few areas and stick to more populated campgrounds. More expensive true, but that will solve the electricity and internet issues required for me to keep up my full time career.
The Beginning of a Journey
We have a long way to go in the planning stages. We’re still shooting for next summer, but in order to do this right we need to pay off our home, buy a trailer, and a tow vehicle out of income. It’s a stretch goal for sure, but I like stretch goals.
*Disclaimer: I begrudge no one their own definition of retirement. You can call yourself retired, working, or Harry Houdini for all I care. I respect your choice, but this is a piece about my situation so hence my definition 😉