Our purpose here is to document our pursuit of reaching Financial Independence (FI).  As I’ve discussed previously, I am defining FI as having a portfolio value equal to 25 times our annual spending.  Put another way, we are looking at an annual safe withdrawal rate of 4% of the portfolio value.   

 So, what is that number for us?  After a lot of hard thinking and analysis it looks like we can live quite comfortably on $78,000 per year (in 2017 dollars), assuming the mortgage is paid off.   Logically, then our FI number would be: 

25*$78,000 = $1,950,000 

Not so fast….  This value would be fine it I had this money in the portfolio now (hence allowing us to retire now).  But, we are forgetting about that little thing called inflation.  With inflation the costs of goods will likely rise each year, so our annual spending is forecasted to rise.  Inflation is variable, but for the sake of my calculations let’s assume an average inflation of 2%.  Using a Future Value/Present Value equation we can calculate what our $78,000 in 2017 dollars will be able to purchase in future years.   

FV = PV(1+i)n 

Where: 

FV = Future Value, PV = Present Value, I = annual inflation, 2% as a decimal (0.02), n = number of years 

As an example:  

In 15 years: $78,000(1+0.02)15 = $104,977 

Therefore, the inflation adjusted FI number is 25 x $104,977 = $2,624,443 

 Summarizing for a range of possible FI years yields the following: 

Years From Now	Forecasted Annual Spending	Required Portfolio Value
15	$104,978	$2,624,443
16	$107,077	$2,676,932
17	$109,219	$2,730,471
18	$111,403	$2,785,080
19	$113,631	$2,840,782
20	$115,904	$2,897,597
21	$118,222	$2,955,549
22	$120,586	$3,014,660
23	$122,998	$3,074,954
24	$125,458	$3,136,453
25	$127,967	$3,199,182
26	$130,527	$3,263,165
27	$133,137	$3,328,429
28	$135,800	$3,394,997
29	$138,516	$3,462,897
30	$141,286	$3,532,155

As an aside: Looking at this chart, you can see that it pays to reach your FI number sooner than later.   

Since there will be several variables coming into play, such as varying inflation and market returns, I’ve chosen to pick a hard target number by averaging these values out… and besides, I like round numbers.  

Therefore, 

Our FI number is $3,000,000 

Now, I understand this is overly simplified.  On one hand, I am not accounting for our daughters’ college education, or weddings, higher medical costs, etc.  Additionally, we may choose to carry a mortgage into retirement.  Certainly, there will be several unplanned large cost events as well.   

On the other hand, I am not accounting for any job raises or other sources of income.  Further, it does not account for Social Security.  While we may not get the full payout, we will almost certainly get a portion of it.  Also, I cannot sit still ever, so I plan to have some form of an income, either from a part-time job or rental income, etc.   

So, where do we currently stand?  As of this writing, our portfolio value is… drumroll…  

Current Portfolio Value:  ***cough, $240,000, cough***  

 Roughly 8% of our goal.  Sad Face.

I didn’t say it would be quick or easy.  Time to roll up the sleeves and get to it.  Based on my current assumptions for savings and portfolio growth (using my Retirement Calculator) I am looking at roughly 20 to 22 years until I reach FI.  This would put my wife and I at 53 to 55 years old.

Not bad.  Not great either. 

I am planning to update our progress every month ala Mr. 1500 Days style.  I’ve created a page where you can Track Our Progress.

What is your FI number?  What do you think about ours?  What am I missing?