We took another stab, today, at determining whether we're on the road to financial independence or not. We've been simplifying our savings, divorcing ourselves of some unnecessary repeating expenses, and getting some advice from financial experts regarding our situation, but of course, they won't give a definitive answer because the question isn't definitive, since there are so many variables (cost of health care, the direction of the market, etc.) And even these experts, flat fee-based advisers, seems to be selling something so who knows how much of their perspective can be believed? Better to, as we made clear from the start with these experts, use the opportunity of working with them to learn as much as we can from them, so we can make our own determination with more confidence.
We've also used a couple of online tools (Fidelity, FIREcalc) to try to gain some insight. I can play with the numbers in each to get to the point where we don't run out of money before dying, with 90% and 99% confidence, respectively, but of course it's all reliant on whether the numbers I put in are reliable, and reliant on whether their models remain valid. Again the big question mark is the cost of healthcare (and related to that, the cost of long-term care, something which we've decided to self-insure, because there are no insurance options that are reliably worthwhile, available in the marketplace anymore).
There are also other variables that I don't have full confidence in. We factored in that I'll average 10% less income over the next ten years and my spouse will average about 20% less income over the next five years (as compared to current income). Even those may not be conservative-enough estimates, as we're both late in careers that are generally not kind to older workers. My spouse's contract is up in October, and it's not clear what'll happen from then. My spouse had a phone interview yesterday for a job that would already pay 20% less, so if that goes along with more "time between jobs" during the next five years, then the 20% estimate is too generous. My own situation isn't as tenuous in the short-term, but it reflects worry that I won't be able to keep this job for another ten years, and quite frankly if that happens I think even a 10% cut in pay for the rest of my career might be generous.
Furthermore, I, specifically, will spend my first five years in retirement before becoming eligible for Medicare. We're assuming that the cost of my healthcare will correspond to a reduction in payroll taxes and income taxes, due to no longer working, and we're considering refinancing again, to capitalize on a 0.5% reduction in interest rate, even with no closing costs, and knock three years of the term of the mortgage, so it ends just about when I retire.
How do we simplify these considerations?
The good news, I think, is that we have some more room on the spending side of the equation. The number I'm using for spending seems high to me. It is based strictly on what Quicken is telling us we spend now, but it makes no sense that we're spending that much money. The real question I suppose is how does how much we're paying in taxes (39% of our expenses) translates into the future. Of course it will go down, but don't people say that it'll get eaten up by additional health-related costs?
We've also used a couple of online tools (Fidelity, FIREcalc) to try to gain some insight. I can play with the numbers in each to get to the point where we don't run out of money before dying, with 90% and 99% confidence, respectively, but of course it's all reliant on whether the numbers I put in are reliable, and reliant on whether their models remain valid. Again the big question mark is the cost of healthcare (and related to that, the cost of long-term care, something which we've decided to self-insure, because there are no insurance options that are reliably worthwhile, available in the marketplace anymore).
There are also other variables that I don't have full confidence in. We factored in that I'll average 10% less income over the next ten years and my spouse will average about 20% less income over the next five years (as compared to current income). Even those may not be conservative-enough estimates, as we're both late in careers that are generally not kind to older workers. My spouse's contract is up in October, and it's not clear what'll happen from then. My spouse had a phone interview yesterday for a job that would already pay 20% less, so if that goes along with more "time between jobs" during the next five years, then the 20% estimate is too generous. My own situation isn't as tenuous in the short-term, but it reflects worry that I won't be able to keep this job for another ten years, and quite frankly if that happens I think even a 10% cut in pay for the rest of my career might be generous.
Furthermore, I, specifically, will spend my first five years in retirement before becoming eligible for Medicare. We're assuming that the cost of my healthcare will correspond to a reduction in payroll taxes and income taxes, due to no longer working, and we're considering refinancing again, to capitalize on a 0.5% reduction in interest rate, even with no closing costs, and knock three years of the term of the mortgage, so it ends just about when I retire.
How do we simplify these considerations?
The good news, I think, is that we have some more room on the spending side of the equation. The number I'm using for spending seems high to me. It is based strictly on what Quicken is telling us we spend now, but it makes no sense that we're spending that much money. The real question I suppose is how does how much we're paying in taxes (39% of our expenses) translates into the future. Of course it will go down, but don't people say that it'll get eaten up by additional health-related costs?
