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My pursuit of financial independence consequently led to my career becoming my identity. I've optimized for raising my income and savings to reduce "time to FI"

My pursuit of financial independence consequently led to my career becoming my identity. I've optimized for raising my income and savings to reduce "time to FI", that by the time I get there -- about 4 years, give or take -- that I've become the thing I explicitly set out to remove from my life. It's not that I don't like working, but I wish to do so on my own terms. Maybe that means short-term contracts a few months out of the year, and having that reduced income cover my living expenses, supplemented with investments. I've done the numbers many times, but I've spent little time considering what I'll do with all that extra time.

echelon 7y ago
Just curious - what's your financially independent number? Are you factoring in cost of living into your ideal scenario, or is there wiggle room for leisure and travel and the like?
- JMTQp8lwXL 7y ago
  $1M, or $40k annually. My rent is about half of my expenses, but I could downsize to a cheaper place and allocate the freed money for travel and leisure. I don't think I'll stop working once I reach $1M. I'd be more open to alternative work arrangements (e.g., temp contracting gigs) closer to $1.5M, to build in wiggle room. Some costs I haven't accounted for (currently subsidized by my employer), like health care, make me feel the "real" FI number is closer $2M as expenses will likely rise with age.
  - yibg 7y ago
    I’ve had the same goal in mind, to get to a point where I can be more flexible with work arrangements. Maybe work part time or work from any location. I’m struggling with doing that though. I’ve already accumulated enough for me to do this, but my income is at its highest currently, and mentally it’s been a struggle to give that up. For the last couple of years it’s been, well let’s just save a bit more to be safe.
  - shaklee3 7y ago
    I think that works as long as you have no spouse or kids. If you do, that number will be very hard to be independent.
  - echelon 7y ago
    What investments or instruments do you plan to put the $1M in to yield $40k/yr? Stocks, bonds, dividends, properties...?
    - JMTQp8lwXL 7y ago
      U.S. large cap (S&P 500), international stocks, some individual public companies (RSUs/ESPP), some bonds. I don't own any real estate.
      - echelon 7y ago
        Do you intend to sell your large cap holdings as they accrue in value every year? How do you rebalance your portfolio to account for under performers and handle cap gains? Sorry for asking so many questions! This is super informative. Thanks! :)
        JMTQp8lwXL 7y ago
        I haven't fully considered this, as I haven't crossed that bridge. A naive approach would dictate holding a 100/0 stock/bonds portfolio, which would never necessitate rebalancing. To date, I've likely experienced some drift, but not meaningfully since my portfolio composition was 99/1. However, of the stock portion of my portfolio, I do plan to hold about one-third international; so I should rebalance annually. This can be done in tax-advantaged accounts, to avoid capital gains taxes. (A common FI strategy is to maximize contributions to tax-advantaged accounts, as I do). I handle capital gains, currently, by simply not selling taxable investments.
        ericd 7y ago
        IIRC the Trinity study (where the 4% SWR comes from) was for portfolios with a decent chunk of bonds? And that it only claimed that SWR for a horizon of 30 years? As in, running to zero in 31 years was counted as a success. Separately, not to rain on your parade, but I'd really be worried that 4% might not be feasible based on current market conditions - that study was based on a period when the US was rising into the role of world superpower, and most of the industrialized world had just been decimated.
  - PopeDotNinja 7y ago
    Will that cover health insurance & expenses? That stuff gets pricey fast.
    - JMTQp8lwXL 7y ago
      I went to my state's health insurance site. It took me about 3 minutes to pull a quote. If my income was $40k/year, I could get a gold plan ($0 deductible) for $4,300/year in premiums (about $350/mo). Bronze plans had $3,200/year premiums but a $6,300 annual deductible. To keep costs predictable, I'd choose the gold plan. If I chose to live fully off investments in early retirement, my taxable income would be lower since than $40k since I would be spending some from after-tax accounts (which doesn't count as income). The lower income could mean higher subsidies, and lower health care costs.
      - pertymcpert 7y ago
        I see this all the time, trying to live off dividends or low returns off something like $1m or so. The thing is if you retire early in 30 years time you’ve spent all of your returns and now inflation has eroded your principal. I don’t see why you wouldn’t just keep working in a low stress easy job, part time or something, and continue to build savings.
        JMTQp8lwXL 7y ago
        The withdrawal rate isn't a fixed $40k. It's $40k, adjusted for inflation, annually. Year 1 is $40k, Year 2 is $41.2k (assuming 3% inflation). Purchasing power stays constant over time. Though I didn't specify the portfolio composition, most of my holding are US Large Cap, which are the 2nd best performing asset class below small cap: https://www.compoundvalue.com/wp-content/uploads/2013/10/IR_1.jpg https://www.compoundvalue.com/wp-content/uploads/2013/10/IR_..., but both classes are significantly above the others (Bonds & T bills), so I'm not sure what's meant by low returns. If you mean sequence of returns risk, most people use a bond tent to mitigate the risk.
        7y ago
WalterBright 7y ago
> I've optimized for raising my income I've had a lot of behaviors that would save money. One day I realized that the time I spent saving money was much less productive than time spent making money. I.e. by spending more time making money I had more free time.
- ip26 7y ago
  Depending on the behavior, you can get some fun out of it. I enjoy snooping around the house looking for leaks & thin spots in the insulation.
  - WalterBright 7y ago
    If you enjoy doing it, that's another thing entirely.

echelon 7y ago

Just curious - what's your financially independent number? Are you factoring in cost of living into your ideal scenario, or is there wiggle room for leisure and travel and the like?

JMTQp8lwXL 7y ago
$1M, or $40k annually. My rent is about half of my expenses, but I could downsize to a cheaper place and allocate the freed money for travel and leisure. I don't think I'll stop working once I reach $1M. I'd be more open to alternative work arrangements (e.g., temp contracting gigs) closer to $1.5M, to build in wiggle room. Some costs I haven't accounted for (currently subsidized by my employer), like health care, make me feel the "real" FI number is closer $2M as expenses will likely rise with age.
- yibg 7y ago
  I’ve had the same goal in mind, to get to a point where I can be more flexible with work arrangements. Maybe work part time or work from any location. I’m struggling with doing that though. I’ve already accumulated enough for me to do this, but my income is at its highest currently, and mentally it’s been a struggle to give that up. For the last couple of years it’s been, well let’s just save a bit more to be safe.
- shaklee3 7y ago
  I think that works as long as you have no spouse or kids. If you do, that number will be very hard to be independent.
- echelon 7y ago
  What investments or instruments do you plan to put the $1M in to yield $40k/yr? Stocks, bonds, dividends, properties...?
  - JMTQp8lwXL 7y ago
    U.S. large cap (S&P 500), international stocks, some individual public companies (RSUs/ESPP), some bonds. I don't own any real estate.
    - echelon 7y ago
      Do you intend to sell your large cap holdings as they accrue in value every year? How do you rebalance your portfolio to account for under performers and handle cap gains? Sorry for asking so many questions! This is super informative. Thanks! :)
      - JMTQp8lwXL 7y ago
        I haven't fully considered this, as I haven't crossed that bridge. A naive approach would dictate holding a 100/0 stock/bonds portfolio, which would never necessitate rebalancing. To date, I've likely experienced some drift, but not meaningfully since my portfolio composition was 99/1. However, of the stock portion of my portfolio, I do plan to hold about one-third international; so I should rebalance annually. This can be done in tax-advantaged accounts, to avoid capital gains taxes. (A common FI strategy is to maximize contributions to tax-advantaged accounts, as I do). I handle capital gains, currently, by simply not selling taxable investments.
        ericd 7y ago
        IIRC the Trinity study (where the 4% SWR comes from) was for portfolios with a decent chunk of bonds? And that it only claimed that SWR for a horizon of 30 years? As in, running to zero in 31 years was counted as a success. Separately, not to rain on your parade, but I'd really be worried that 4% might not be feasible based on current market conditions - that study was based on a period when the US was rising into the role of world superpower, and most of the industrialized world had just been decimated.
- PopeDotNinja 7y ago
  Will that cover health insurance & expenses? That stuff gets pricey fast.
  - JMTQp8lwXL 7y ago
    I went to my state's health insurance site. It took me about 3 minutes to pull a quote. If my income was $40k/year, I could get a gold plan ($0 deductible) for $4,300/year in premiums (about $350/mo). Bronze plans had $3,200/year premiums but a $6,300 annual deductible. To keep costs predictable, I'd choose the gold plan. If I chose to live fully off investments in early retirement, my taxable income would be lower since than $40k since I would be spending some from after-tax accounts (which doesn't count as income). The lower income could mean higher subsidies, and lower health care costs.
    - pertymcpert 7y ago
      I see this all the time, trying to live off dividends or low returns off something like $1m or so. The thing is if you retire early in 30 years time you’ve spent all of your returns and now inflation has eroded your principal. I don’t see why you wouldn’t just keep working in a low stress easy job, part time or something, and continue to build savings.
      - JMTQp8lwXL 7y ago
        The withdrawal rate isn't a fixed $40k. It's $40k, adjusted for inflation, annually. Year 1 is $40k, Year 2 is $41.2k (assuming 3% inflation). Purchasing power stays constant over time. Though I didn't specify the portfolio composition, most of my holding are US Large Cap, which are the 2nd best performing asset class below small cap: https://www.compoundvalue.com/wp-content/uploads/2013/10/IR_1.jpg https://www.compoundvalue.com/wp-content/uploads/2013/10/IR_..., but both classes are significantly above the others (Bonds & T bills), so I'm not sure what's meant by low returns. If you mean sequence of returns risk, most people use a bond tent to mitigate the risk.
        7y ago

WalterBright 7y ago

> I've optimized for raising my income I've had a lot of behaviors that would save money. One day I realized that the time I spent saving money was much less productive than time spent making money. I.e. by spending more time making money I had more free time.

ip26 7y ago
Depending on the behavior, you can get some fun out of it. I enjoy snooping around the house looking for leaks & thin spots in the insulation.
- WalterBright 7y ago
  If you enjoy doing it, that's another thing entirely.