Tick Tock: We’re Nearing Early Retirement

I kind of miss updating you on our FIRE progress on a regular basis, as we did last year with monthly Freedom Fund updates. It not only gives you an idea of our early retirement status, but it also gives us motivation to finish, a reason to document our progress, and an explanation of our train of thought.

Our strategy was to invest in the Freedom Fund until we felt financially independent, with enough investments to support our living standards in early retirement, and then focus on saving for a house.

Initially, the Freedom Fund consisted of index-based investments, a rental property, and savings. We set the goal of covering a $35,000 annual spending budget and met it in January of this year.

We wanted to be realistic about the possibility of a market downturn, so we set our first goal for the summer of 2017. However, the market continued to rise, allowing us to declare FI earlier.

What has happened since our last Freedom Fund update?

Since then, our net worth has increased by nearly 10%. It’s almost surreal! The majority of our taxable income is now going toward the future purchase of our home.

We continue to contribute to our 401(k)s and Roth IRAs in order to lower our tax bracket.

The Freedom Fund continues to grow because we continue to invest in our non-taxable investment accounts. The cash savings from the Freedom Fund have been transferred to our House Fund.

Our index-based investments and the rental property now make up the Freedom Fund.

Hmm, the House Fund sounds a little boring for a goal fund, so let’s spice it up with some Latin flavor and rename it Nuestra Casa Fund!

Aside from the financial aspects, our lives remain the same after reaching FI, except that our threshold for BS is much, much lower than it was previously.

Nuestra Casa Fund!

Waiting to save enough money to buy a house before retiring is the same as trying to pay off a mortgage before retiring.

Perhaps there are some minor differences:

a) Rather than buying a house first and then saving for retirement, we funded our retirement first and then will buy the house.

b) Instead of the house being a detractor, taking money away from retirement savings, our retirement funds are providing income to help fund our future home.

c) Saving for a house creates anticipation as you imagine what you’d like to build or buy, whereas paying for a mortgage with interest may cause buyer’s remorse as you make that monthly payment to the bank.

We originally planned to invest the funds for this fund in various investment vehicles, such as a balanced index fund. However, as we approach retirement, we’re growing fonder of owning our home and want to ensure that the Benjamins are available when we need them.

For us, risk-free or very low risk is the way to go in order to capitalize on any future real estate opportunities. When sh*t hits the fan, money is king.

We are currently 30% of the way to our goal. These funds are “locked” and will only be used for our home purchase.

Our early retirement date

We’ve decided to retire in 2019. That gives us enough time to save for our house and accomplish other personal goals before we relocate. Retiring by then corresponds to our original calculation of leaving the “rat race” by 2020. 

We began FIRE planning in 2012, when we had very little net worth and I was still paying off debt. We followed a few principles to achieve financial independence, which we listed in this post, and let it all play out.

Projected withdrawal rates in retirement

Our nest egg is growing steadily, and we expect to withdraw less than 4% of our investment portfolio in retirement. In fact, we’re going to set a target of 3% withdrawal rate for ourselves. And I don’t believe it will be a sacrifice in happiness because our expenses will be significantly lower with a paid-off house.

Challenging ourselves to live a life of abundance in retirement without having to spend more money will allow our investments to grow even faster.

Risk management and capital preservation

The greed I see in the markets makes me nervous. We’re a little more than two years away from retirement, and allocating our assets in ways that serve our short and long-term goals is critical now, more than ever.

We only wrote about our current asset allocation about a year ago, and things are quickly changing. It’s amazing how our risk tolerance has evolved in recent years.

I try to make sense of it, and the only explanation I can come up with is that we need more constant refining because our retirement plans are taking giant steps. Everything is moving at a breakneck pace!

We believe in long-term investing, but we don’t want to expose ourselves to unnecessary risk by investing money for short-term goals in riskier investments.

Less risk, less return until we retire? We’re okay with that…

Our days of saving with a 90/10 or even a 100/0 stock/bond fund allocation are over. As we near retirement, we’re focusing on capital preservation. We’re entering the realm of cautious investing. Yes, we need this money to last us 60 years, but we’ll also be investing in real estate, so not all of the assets will be in our investment portfolio.

Nowadays, we’re more concerned with capital preservation and risk management than with risking our shirts for a higher return. “Only when the tide goes out do you discover who’s been swimming naked,” Warren Buffet says, and a close friend reminded me during a recent lunch conversation.

There’s nothing traditional about our retirement timeframe

A traditional retiree can save for 30 years if they are diligent savers. Their net worth may grow slowly as other aspects of their lives take precedence. Because their accumulation stage is so long, their asset allocation may not change much because they aren’t contributing as much to the investment pot as they should.

We, on the other hand, took massive steps to be able to retire early by maxing out our retirement accounts, staying out of debt, and not owning a home, and we’re doing it in less than ten years. Any of these steps can save anyone many years of having to save for retirement.

I liken early retirement planning timeframes to dog years. We’re doing what a typical retiree would do, but on steroids. It’s like a puppy going through puberty and turning into an old dog before you know it. (In this analogy, being “old” is fantastic.)

Our allocation can change quickly, especially when there is a bull market in the background. It could easily be out of whack and out of step with our objectives. We address this issue by rebalancing on a regular basis.

Our paycheck contributions no longer move the needle as much as they did when we first started investing because they account for a smaller portion of the total portfolio, but they do help to shift our allocation in the right direction. They help us rebalance the portfolio.

We’ve come a long way

When the market crashed in 2008, I “lost” roughly 43% of my retirement savings (on paper). Forty-three  percent is a big number, but I only had about $20,000 in my account. Losing nearly half of the money was not as painful as it would be today.

I had no intention of retiring anytime soon. I had a risk appetite and continued to invest heavily in stock funds. It’s a completely different story now.

We kept investing over the years, and our investments grew alongside the bull market. We posted about our net worth growth earlier this year, and as we looked back on our progress, we realized, holy sh*t, we’ve come a long way.

How do we plan for allocation changes?

My wife and I are in this together, and we usually meet to talk about money. Our most recent finance meeting was to go over some allocation changes

We met on the weekend of April 22, wrote all of our options on Fifi (our dry-erase board), challenged each other and played devil’s advocate, and finally agreed to reallocate some assets to meet our goals.

To get the party started, there was coffee, fresh french rolls, and colorful markers. 🙂

How we’re shifting our assets to meet our retirement goals

Given our reduced risk tolerance and impending retirement, the most recent change we made was from stocks to cash. We’ll keep a larger cash portion of our portfolio until we retire so that we can borrow it and invest it elsewhere in the near future.

(Please keep in mind that I use the terms “stock” and “stock fund” interchangeably, but we only invest in mutual funds/EFTs, not individual stocks.)

Prior to the change, our net worth stock exposure was around 62 percent. As a result, we sold some stocks in our retirement accounts, bringing our stock market exposure down to 45 percent of our net worth (not to be confused with portfolio allocation). Stocks constitute a much larger portion of the investment portfolio.

From now until retirement, we want to limit our stock exposure to no more than half of our net worth. After retirement, our long-term goal is to reduce it to 35%.

As we’re still investing, we will continue to buy stocks as the allocation dictates. We’ll have more stocks than we do now, but we’ll be less exposed because they’ll make up a smaller portion of our growing net worth.

For the time being, we’re investing very little in stocks because they continue to grow without our help. So, while saving for our home, we continue to invest in other asset types in retirement accounts.

In retirement, I’m looking forward to having more investment options. For example, we want to increase our REIT holdings to 10% of our investment portfolio, but we can’t do so through our 401(k). So, our goal is to do a tax-free Roth conversion and buy more REITs in IRAs.

Closing thoughts

I believe that once our earning years are over, we won’t need to tinker with the asset allocation as much and will instead review it quarterly.

For the time being, we must continue to construct the ark. We’ll be ready to move on to the next stage of our lives whether it rains or not.

It’s hard to believe that we’ll be retiring in three years. We try to live in the moment as much as possible, but we can’t wait to see how the next chapter of our lives unfolds.

We’d like to hear from retired people. How did you manage your assets before retiring? Why were your assets allocated in a particular way?


After dedicating 13 years of his career to Vanguard, José retired from the corporate world at the young age of 44. During his tenure at Vanguard, he expertly coordinated the production of both electronic and print educational materials for 401(k) participants. Now, he relishes in his early retirement, cherishing time spent with his family, indulging in his favorite hobbies, seeking out new experiences, and savoring meals in the comfort of his own backyard.

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