473 | Are We There Yet? 'Retire Early' Case Study

23:46And that's just a line item. Okay. Is it unfortunate? Yeah. It's really unfortunate, right? Like we're not going to sugarcoat this. It's unfortunate, but okay. If that's the worst case scenario that goes in my budget and it is what it is. So Teresa, like you were saying, depending on income, you can get subsidies for those premiums. And if you're at a point where you're retiring early and your income is dramatically reduced, well, the subsidies are going to be significant. But then like Fritz so wisely said, okay, well, there's a give and take here if you want to do Roth conversions, right? So there's always a give and take.

24:18And I think just us understanding this and knowing it gives us more information because again, why we're doing an episode like this is how can someone else do this? What do they have to think through? And just final word is many years ago, I had my insurance, quote unquote insurance, it's not insurance, through Liberty HealthShare, which I know, like you said, most of them have religious requirements. Liberty did not have a religious requirement. So that was one that our family chose for a couple of years. And to Liberty's great credit, they, for us, were fantastic. But I was always cognizant of the fact that it is not insurance.

24:54So in the back of your mind, you need to be aware that even if this company is good, and I'm not making a value judgment on any company, including Liberty, but even if they're good, even if they do what they say, it's not insurance. So there is some risk. And this is for everybody out there. You look at the health sharing ministries, the premiums are lower. There's no question about that. But usually the party that I found was the negative one was the hospital. Actually, they balanced bill. They came after us multiple times. Liberty went to bat for us. This was in just a fairly short bit of time.

25:25So I had some fairly significant issues with this whole deal. And that led me to stop being on Liberty and going to a traditional and true insurance because it was just too big of a risk for me. So, Teresa, I know you have wide eyes right now. This is not to threaten you. It's just to go in truly with eyes wide open of this is not insurance. So, Fritz, I know you're dying to get in here. We had exactly this discussion, Brad, Teresa, and I did when she said, I think I like the health sharing ministry approach. And I said, well, recognize it's not insurance and there is some risk. And I went through the same decision-making, right?

26:00I retired at 55. And Brad, ironically, we took the same approach. We decided against the health sharing because I had used the higher numbers in our forecasting, in our spreadsheets. And I was like, look, I've already built it into the numbers. I know that we can cover it. Let's just buy an open market plan. I ended up getting a retiree plan, which anyway, it doesn't matter. It's still it's going up a lot. It's$2 ,500 a month now for my wife. And I know we're 60, right? We're getting older. But even to your point, it was in our numbers at that level. I planned conservatively and I planned$2 ,500 five years ago.

26:31It's just now there now. So I'm like, oh, I'm actually to the good. What am I talking about? I'm paying$2 ,500 a month. And I'm like, oh, that's okay. I got five years below that, right? Again, it's just a number. And you've got to think about your risk versus reward. And my anxiety was always, they can say no, and there's nothing you can do about it. And that just, that bothered me. That really bothered me. Not that we had anything to hide. I mean, we, you know, but I would hate to end up with cancer and they say, oh, nope, it's something we're not going to cover because we think it's attributed, blah, blah, blah, whatever.

27:02And there's nothing you can do. So you do have to think about that, Teresa. It's not just the cost. It's your peace of mind with taking on some of that risk of potential coverage issues. Yeah. That goes back to my whole mortgage deal. Do we pay off our house early or not. It's not just a mathematical thing. It is an emotional thing. Right. Very much so. And I think a lot of personal finance truly is emotional, behavioral, and psychological. That's just the numbers. I wouldn't say they're easy, obviously, as shown by what you guys have done here, but they're the easier part, let's say, right? Like it's all in our head and that's okay.

27:38We're humans. This is what we do, right? So Teresa, while we're on that though, because a lot of people do go back and forth. What are you thinking in terms of paying off your mortgage before you hit RE? Oh, gosh. We paid it off in 2018. I don't regret it one bit. I don't regret it one bit, especially going through COVID and the possibility of losing our jobs. Not a problem. We had so much peace. It wasn't a worry at all. Highly recommend. Yeah. I love it. So, Brad, I think talking about these things, these kind of show the considerations you have to think about. And the important thing is whether you're going to do a spreadsheet or whether you're going to do a calculator, you've got to think about these things because you've got to have some assumptions regardless of what tool you use to determine when you're going to retire.

28:21So let me go here. I guess we talked about the spreadsheet. We talked about the assumptions. It was a great exercise. It was very useful to have that as a baseline because we knew what the spending assumptions were. We knew what the net worth assumptions were. And that exercise in the spreadsheet was very helpful for when we shifted over to the second methodology, which I guess is probably reasonable to go ahead and talk about that now. Yeah. Perfect timing. Okay. So the second approach, quick reminder, the spreadsheet said she could retire 28, 29, somewhere in there, depending on your assumptions.

28:51Okay. So 2028 or 2029. So about five years approximately. Correct. Teresa was happy with that. We, you know, we could show assumptions where she could retire in 2026, right? You could have a much more aggressive market return. You could have lower retirement spending. You can make the numbers say what you want. So the beautiful thing with a spreadsheet is you could look at changing your assumptions and you could say, okay, if I want to retire by 2026, how much do I have to reduce my spending in order to be able to get to that 4 % safe withdrawal rate, right? Or how much more aggressive do my returns have to be in order to support it?

29:24Because as she goes forward here, she's going to get actual returns for 2023, 2024, 2025. And if she's getting 10, 15 % returns, and we assumed six or eight, she's going to start seeing, hey, maybe 2026 is possible, right? So the spreadsheet gives you a nice baseline that you can make changes to see what's the impact if I do want to get out earlier. That was really helpful. That said, the most important part was getting the spending assumption and the net worth assumption, both of which we used when Teresa went into new retirement. And she did this entirely on her own. I've got to give her credit.

29:58I said, look, I'm not going to log into your new retirement. You already use it. Go in there and make sure all the numbers reflect this. And Teresa, we'll throw it over to you and your new retirement experience, and we'll circle back with our discussion with their model expert that went through your numbers with us. Yeah. So that was really great. Because I was already a user, I actually had all of my accounts connected to new retirement. So I had live data to work with. But for the case of this study that we did, I unconnected everything and then just put in our numbers manually so they wouldn't change.

30:31And so that's what our study was based off of. we met with Nancy and she actually helped me update the model because I had some changes with income. The model requires a few workarounds when it comes to employer 401k matches. So she had to show me how to work around that. She was really great. And then we met with Bruce, who's a CFP. We walked through all of the assumptions that we had already put in. We had some conversations around the Roth conversions, which Fritz touched on already. And then he also pointed out that maybe I need to look at increasing my spending for the first 10 to 15 years after retirement because you're healthy and you're younger.

31:15If you want to travel or whatever plan that you come up with, you want to be able to spend that money at that point in time. And then when you're older, your spending is going to be drastically reduced. so that's something also to consider so there's just a lot of um i know we're not talking about specific numbers in this episode very much but because that's so personal that's like you said brad the easy part of it it's all the other things that you need to consider when you're working through your business case in your situation right it would almost be a distraction to talk about your specific numbers because it's really about the process right and i love what you said there, which is really the ethos of the Die With Zero book that I've mentioned so many times.

31:59I was just going to say Die With Zero, Brian. I thought you loved that book. So yeah, that's funny. You could see the idea forming in my brain. Because right, I mean, when is your spending going to be significantly higher? It's going to be in those years when, hey, you can still travel as significantly as you want. This is not to say, obviously, that your life is over at 80 or some arbitrary number and it's all down. We're not saying that clearly. But if you're honest with yourself, are you going to be able to travel and do more things at 50 or 55 or 60 than you are at 80, 85, 90? Yes, very obviously by definition.

32:30So we're not telling anybody something that they don't know intuitively, but you need to think about this because your spending is not going to be the same every single year. And I think that's, what's beautiful about tools like this is that they enable you to get much more granular than just a spreadsheet. Potentially those spreadsheets, obviously we can, we can make them as convoluted as we want, but most people just say, okay, my five spending is going to be X. And then they game that out for a 30 year period. And the reality is, Hey, sometimes you might pay off your house six years into five.

33:04You might have a college payment for the first two years, but not for the rest of you. Like you can adjust all this. And that's, what's beautiful about using a much more significant tool like this. Yeah. And I think Brad, the other thing too, is, you know, I've always struggled with it. When you first retire, you're not going to have Social Security. Okay, I'm going to use safe withdrawal rate of 3.5%. Well, realistically, if you look at what that turns into when Social Security starts, it's a lot less than 3.5%, right? So wait a minute. Does that mean I can start with a higher safe withdrawal rate?

33:33Well, yeah, but how much higher? That's really hard to do in a spreadsheet. And with a model, it does let you run that out, and it'll show you the Monte Carlo. It'll show you the projected net worth. Even if you go to a 5%, 6 % spending in the first couple of years before your social security kicks in, that may be totally fine because your withdrawal rate will drop so low after your social security starts. And that's hard to model in a spreadsheet, whereas a model like new retirement captures that and it runs all the Monte Carlos around it and it shows you that's okay. Right. It's hard to model.

34:09I find that hard to model in a spreadsheet. Yeah, agreed. And so, right. I think what a lot of us miss is that social security is current income in that year when you get it and it reduces how you would do this calculation is okay. My spending is X$50 ,000 and I get social security of Y just making up a number$25 ,000. You're not taking like a safe withdrawal rate out of that social security. That is dollar for dollar. Hey, I'm using that to cover my life expenses. So in that case, okay, 50 minus 25, I just need to cover from my five number. my pot of money, the$25 ,000 that's remaining. Right.

34:45So Fritz, what you said, which is so brilliant is that then significantly adjust upward in an upward fashion, your safe withdrawal rate for the years prior to when you get social security. And we just, again, we're so simplistic with this. All of us, when we think of this in our head is like, okay, my fine number is this, my safe withdrawal rate is that. And it just goes out till infinity. It doesn't work that way. There's nuance. And what the punchline is, a lot of us are working more years than we have to, right? And what is the one non-renewable resource we have? It's our time. I think we're all being conservative upon conservative upon conservative with our numbers, which I get.

35:25I mean, believe me, I get it. But I think when you layer on four different levels of, oh, I'm just going to be a little more conservative with this number, it gets to a point that it's not reflecting reality. Yeah. And the nice thing, if you look at, you know, Teresa's case, again, we're talking about the second methodology, which was new retirement. We're not necessarily promoting them. It's just the model concept in general. You can play with scenarios of I'm going to retire a year early. I'm going to retire two years early, and it will instantly show you your probability of success, right? So we did that and we looked at, okay, right now we're going to say 2028, but what does 2027 look like?

35:59What does 2026 look like? We talked about how you can do that in the spreadsheet, it's as easy in the model as changing your retirement date. And it'll show you what your funding ratio is. That flexibility to help you decide how conservative you want to be in your number and how long you want to work, it's a functionality of these types of models that's really helpful because you can kind of vet out, am I being too conservative? Am I sandbagging every single number? And maybe I don't need to do that. And I told Teresa, she's planning 2028, 2029. I told her I'd be willing to bet she'll be able to retire earlier than that because I know how conservative we were on the growth assumptions, the spending assumptions.

36:37And she's going to continue to update this every year and look at the new retirement model when the actual numbers come in. And my guess is she'll be out by 2026, 2027. I'll say 2027, Teresa. I'll put a dollar down that you'll be out by the end of 27. Well, hang on to that dollar because I had a little life change. Oh, no. Both of my kids moved back home. Wow. Oh, I just lost a dollar.

37:02I'd rather lose my dollar than what you lost. Hey, that's life, right? So yeah, we had talked about in your assumptions, what should I assume for continued care for our kids, right? And that's different than what you assumed. It is. So Brad, after we recorded the first episode, my younger one moved home literally that weekend. And then my older one just moved home a week ago. So this is breaking news. It's not going to derail our plan too much. You know, they're pretty self-sufficient, but it does make me think a little bit more. I don't really think I'm going to extend past 2029. I think that is like my firm goal.

37:37But I'm also considering the idea of maybe working flex time, which is, you know, 24 to 32 hours a week instead. That way we can have a little bit of income coming in and we can keep that medical coverage reducing any huge premiums. Right. it is very easy to fall prey to one more year syndrome, right? Which I think a lot of us are like, we want that safety. We want that security. It's just, it's natural. And again, to not wish away your life of like, okay, yeah, it would be a little safer. And yeah, the number is ugly. And I'm not giving you advice here, obviously, Tristan, this is your life. You have to figure out what works.

38:16But I would just caution. I've seen so many people do that because that's, I mean, we're savers, right? Like we're people who were worried about the future. We're thinking about the future. And sometimes that leads us to maybe make potentially suboptimal decisions for our lives. And, and if I could just quickly jump in on the, your kids are back. Like I have to say, like that was such a gift that my parents gave to me. And I understand how fortunate I was to be in this position, but I lived at home for a couple of years after I graduated from college. And I mean, that was the springboard that set me up for my path to FI.

38:54I mean, I was able to save essentially 90 % of my income for two and a half, three years. And it was remarkable. I was able to then purchase a co-op apartment on Long Island, which turned into more equity. And it just, again, that was the springboard. So it was really just such a gift. So I'm speaking on behalf of your daughters. It's a really remarkable thing to be able to do that. Yeah. I'm glad we were able to welcome them back home. And I am actually setting them both up with the split it before you get it method and brokerage accounts because, man, the money market rates are just so great right now instead of just a standard checking account.

39:35Oh, it's amazing. It's hard to pass up 5 plus percent. Right. We've mentioned before, the bank that I personally use is CIT Bank, which I like them a lot. their rate is really wonderful. So we have a link at choose of at com slash CIT. But Fritz, just real quick, I wanted to jump in. You said, obviously, new retirement has bent over backwards to help us. And they've been a great friend of the show forever. That's not the only software that runs this. I know my buddy Chris Hutchins has used something called projection lab. So projection lab.com for people out there, we're not saying new retirement is the only option.

40:09It's a fantastic option. And they helped so very much with this project for prior projects at choose to buy, but there are different softwares of this. Just these pieces of software are just remarkable though. And I think it's very important to get down to that granular level and use one of them. So just always want to throw out. Yeah. And the other thing I would say, Brad, let me piggyback on your comment. Cause I said this to Teresa too. So I think it's important. It's so easy to get concerned about when am I going to have enough to retire? Right. And the one more year, one more year, it goes with the die with zero approach.

40:41I actually wrote an article, my most recent post It's called the three-legged stool of retirement. And when you were talking about this, it triggered the thought. There's three legs on your stool. One is your money, one is your time, and one is your health. And as much as we focus on money, the reality of it is money will be the last leg standing on that stool. You're going to run out of your health and you're going to run out of your time before you run out of your money. Almost guaranteed, right? If you're a conservative, if you listen to this show, if you manage your money, unless you retire at 25 or something stupid, right?

41:09If you're methodical like Teresa is and you're managing this and you're making educated decisions, you're probably, think about this, the safe withdrawal rate concept is kind of worst case scenario. So in anything better than a worst case scenario, you're going to have more money than you think because that's based on the lowest success rate over the past, the Trinity study, right? Over the past 50 years, what's the level you could withdraw from that would work in basically every market environment. So by definition, that's a lower than average market return. So you do have to be careful about getting hung up on the what ifs because they will eat you alive.

41:47You can never answer the question, absolute black and white. Teresa, you can retire in December of 2028. You'll never have to worry another day in your life. You can never make that kind of statement because there are always the kids that move back home. There's always the roof that needed replaced. There's always the car accident, right? There's always the health issue. Those things are life. Don't get so focused on, and this isn't to Teresa, this is to everybody. Don't get so focused on the money side that you don't realize that the more scarce resources are actually the time in your health.

42:16Those are as scarcer more than the financial side of it. Yeah. Here, here. And that's a big part of certainly why so many of us are really focusing on our health now, right? Is how can you extend what's known as the health span? You may or may not be able to affect your lifespan, which is the number of years you're going to live, you probably have some level of impact on that. But that health span, the number of healthy years, you have to put in the work, right? And this is really an important part of this whole, this three-legged stool of just life in general is you have to realize as you get older, again, just biological fact is we start losing muscle.

42:52Then it all just kind of keeps compounding negatively in terms of, okay, I can't walk as easily. And then it just keeps going and going and going. So you have to understand that's going to happen. You know, I'm spending six hours a week at the gym lifting weights at this point. And it's because I understand I can do this at 44, but I need to set the groundwork for what is it going to look like when I'm 75, 85, hopefully 95. Right. And I want to, there's things I want to still be able to do. And I have to put the work in now because it doesn't just magically appear. You've obviously read Peter Atiyah's Outlive, which is a great book.

43:28I read that too. And that's, struck me with that book is he talks about, let's say your dream is at 75 years old, you want to be able to pick up your granddaughter or grandson. Okay. Let's say it's a 40 pound grandkid at 75. Well, that means you got to be able to pick up like 80 pounds today, right? Because you will naturally atrophy. And that concept from that book, I've started doing protein supplements as a result of that book. I started taking the fish oil, right? He's got some really good tactical advice. And I've always done weights since I've retired. I didn't before and I've always been a runner, but focusing on the weights is hugely important.

44:02It's not just cardio, right? It's cardio and weights. So yeah, that's one of those legs of the stool, right? So you can manage your investments to maximize your return. You can manage your health to maximize your return. You can manage your time, right? You talk about the 1 % stuff. A lot of that is time related. How do you be more efficient with your time to do the things that you want to do rather than wasting your time doing things that aren't of value to you. Each one of the legs, you can have a discussion just like we just had on health, just like we've been having on financial. You should think that way about each one of those legs and invest in all three of them equally.

44:38Yeah, Fritz, I love that. And as you surmise properly, I've been following Dr. Atiyah for many, many years. And yeah, it's just so important to think about this. And it really, it touches every aspect of your life. And like you said, it really is, it's all of these things. It's not just the finances. We need to really think of it. So kind of speaking of it's not just the, there were two different parts of how you both went through this case study. And obviously we have spent this whole episode and this is really where we're largely going to stop here, but we spent this whole episode thinking about the process, right?

45:14Like how do you get to the point where the numbers make sense. I'm confident with the numbers. I feel like in the future, this is my date. And now obviously Fritz, like you said before, reality intervenes both good and bad, right? Which is, this is not just something you do one time as new reality comes in. And every year there are market returns, there's new income, there are new expenses. You update this, right? Like this is not just set in stone. Teresa is going to close her eyes and wake up in 2029 and ta-da, here I am, right? She might find out that ta-da moment comes in in 2027, like you think it might.

45:50And that's what's great about this. So there's that side, but then there's also, okay, preparing my actual finances for early retirement. What do I think about in the years beforehand? Do I think about, as Fritz, you love the different buckets, right? And we talked about this a lot a couple of years back in episode 206, which I think we entitled, what happens when the paycheck stops. But I wanted to give you just a couple minutes, maybe to just give a super high level overview of how you thought about that with Teresa. And then, like I said, I think that's outside the scope of what we can do in this one episode, but we can refer people to articles on your site and that prior episode for sure.

46:31Yeah, great. I think I agree. It's a good point to wrap. And really the focus has been, how do you decide when you can retire? For Teresa, we answered the question. It's 2028, right? Maybe earlier. We'll watch every year. But we answered the question. We went through the process, and it was a great exercise. And Teresa, I really admire you. You're a remarkable woman, and congratulations on reaching this point. To your comment, though, Brad, that's not the end of it. The second phase, and Teresa and I did go through this. It's in the article. I'm sure you'll put it in the show notes that I wrote up about the case study.

46:59We also spent quite a bit of time saying, okay, now as you get closer to this retirement date, here's some of the things you've got to think about. And the biggest one that jumps out as kind of being obvious when you think about it is you've got to build a little bit of a cash buffer, right? You can't just be selling stocks every year to fund your spending because you run into that sequence of return risk. Well, how do you build, let's say you want to have three years of cash. You can't wait until six months before you retire to start building three months of cash, right? So part of what Teresa is doing now is redirecting some of those savings to start building those buckets, which is what I use, but you don't have to, but you have to have some kind of liquidity buffer.

47:36So there's a whole stage of things as you move from the accumulation phase to the withdrawal out of your investments of positioning your portfolio. And how do you think about that? That's all in the article. And it is a part of this planning, but it's kind of the second phase of this planning. And then the third thing is not only the financial stuff, but the psychological preparedness for retirement, the soft side, as I call it. And I would say both of those, if you're thinking about a process, the first process is when can I retire? The second process is how do I transition my portfolio for retirement?

48:10And the third process is what am I going to be when I retire? Those are the three phases to the general planning. Yeah, I love that. And yeah, we have been remiss to this point of not mentioning this incredible case study article that you put on your website. So So that is really essential for everybody. If you're listening to this and you've gotten to this point in the episode, check out this article. I'll link it in the show notes. It's this case study of Teresa. And like you said, Fritz, you go into a lot of the numbers, but then there's also this critical part at the end, the strategy overview, the final working years, and then the drawdown strategy overview, the retirement years.

48:48And I think that's where people will get a lot outside of the scope of what we're doing here. So yeah, super duper helpful. Teresa, like Fritz said, this is amazing. I'm just so happy for you. I mean, to see the remarkable path you've taken, it is just so inspiring. And I just want to thank you for being a member of our community, for coming on the podcast, for being so open. It's really, it's remarkable. And now to reach FI in your forties and retire early, that's not too shabby, right? My heart is just overflowing with gratitude for you, Fritz, and for you, Brad, and this whole community because I wouldn't be here if I hadn't found this show all those years ago to kind of help me, you know, guide me and lead me and to poise myself to be in this position.

49:38I'm just extremely thankful. I appreciate all the time and effort you guys poured into me. And like I always tell my kids, you win or lose by the way you choose. Oh, that is beautiful. What a perfect way to end the episode. So thank you both. Teresa, again, thank you for being here. Fritz, a huge thank you for all the time and care you put into this. It's remarkable. And to our friends in New Retirement, they just went out of their way to help. I mean, hooking you up with a CFP to chat with and to use their software, just amazing. So yeah, huge thank you to everybody involved. Thank you for listening to today's show and for being part of the Chooseify community.

50:17If you haven't already, the best ways to get involved are first subscribe to the podcast so you're listening to this on a podcast player just hit subscribe and then subscribe to my weekly newsletter i actually sit down every monday and write this by hand and i send it out tuesday morning so just head over to choosefi.com slash subscribe and it's really really easy to get on the the newsletter list right there and i would greatly appreciate it it's the best way to get in touch with me you can actually just hit reply to any of those emails and it comes directly to my inbox. So that's the way that I keep a pulse of the community and how we keep this the ultimate crowdsource personal finance show.

50:57And finally, if you're looking to join an in real life community, we have choose a by local groups in 300 plus cities all around the world. So head to choose a by.com slash local and you'll find a list of all of those cities in 20 plus countries all across the world. And if you're just getting started with FI or you have a family member or a friend who you think would be interested, two easy ways. Choose a FI episode 100 is kind of our welcome to the FI community. And even though it's a couple of years old at this point, it still stands up and it's a really great just starting point to get an understanding of what is financial independence?

51:32What are we doing here? Why are we looking to live a more intentional life where we save money and use it as a springboard to live a better life. And then Choose a Vi created a Financial Independence 101 course that's entirely free. Just head to choosefi.com slash fi101. And again, thanks for listening.