It’s time to update my glorious early retirement chart for the last four months of 2016. I do it three times a year because I don’t like to think about it more than that. Thinking about money is boring. I’d rather think about burritos.
Here’s where I sat at the end of August 2016.
The red line represents my expenses. The green line represents my theoretical monthly projected passive income and is based on my net worth and guesswork. I hope that my precious VTSAX investment will increase 7% per year and inflation will top out at 3% per year. That means I can take out 4%. 4% of my net worth divided by 12 gives me my monthly projected passive income. The green line. Get it?
As long as the green line is higher than the red line, my net worth will continue to grow while I take a nap.
All of this is theoretical at this point. I haven’t touched any of my investments and am still living off my cash that I stockpiled from my corporate lawyer job. I’m almost out though, so I’ll start to pilfer from my VTSAX soon and tell you about it. That’ll be a fun adventure.
Three months later, at the end of December 2016, this is what my chart looks like.
I’m actually surprised the latest red expenses dot is so high. I spent the time almost completely in the United States, mostly California. A bit of time in Alaska. Some time in the United Arab Emirates. Oh, also Chicago, I guess.
My darling green line struggled upwards. The market is surprisingly chill despite the end of the world and common sense. My net worth increased almost $20k even though I didn’t do anything.
That’s a lie. I did try monetizing my blog through Amazon links. Of that nearly $20,000 increase, I made $49.20 from my brain juice. My blog. My writing. The rest came from my capital working hard for me through dividends and the increased price of VTSAX. My money can perform better than I can.
But you know what? I’m actually ridiculously proud of that $49.20. I made money doing what I love!
You’re not very impressed with that number though. I know. I can sense the smirk. You’re saying that I could buy maybe six burritos with that. Maybe. If I declined the guacamole. Who wants to forgo guacamole though? Nobody. That’s who.
This earning money through writing thing is a lot harder than I thought. The good news is that the readers I do have are the best of the best.
That’s me flattering you. I love you guys.
Graph looks like expenses are higher all the time than the passive income. Y-axis is amount, so the redline should be below the green line. “As long as the green line is lower than the red line, my net worth will continue to grow while I take a nap.” This is not how this graph reads to other people.
You’re right! I corrected it. 😀
Gosh I love your charts. Super impressed you’ve been living of cash savings since retirement (I somehow missed that in previous posts). I look forward to hearing more about how and when you’ll decide to withdraw from Vanguard.
And awesome work on the $49.20 you made!!
That’s $49.20 more than I’ve made. Kudos to you!
If I understand your chart correctly don’t you want your green line Above the red line to have your net worth grow while you take a nap??? Dylsexics untie!
Oh and congrats on the $49! It took me two years to earn that on my first blog.
Green line should be higher than red for NW to grow. Just making sure, I think it was written backward above.
hopefully u didn’t put too much energy into monetizing the blog. That sounds like real work. And that would mean no longer retired!
That’s ok.
I went into FIRE and then back out to a job / career 2.0. I don’t need the money but I needed some “smart people” social interaction and purpose which the job provides. It also avoids spending the nest egg and helps cover taxes on dividends so portfolio can grow.
U might consider what level of monetization is “enough” so as to avoid getting preoccupied on monetization and stay focused on writing good stuff. Perhaps set goal that blog income covers income taxes on dividends ….
I didn’t put too much effort into it. I’m reading books anyway, so it’s just linking to them. I like your goal idea though. Hopefully when I publish my book that will cover it!
And I updated my incorrect wording!
In paragraph paragraph 4 I think your lines are backwards. Should the green be over the red? Your blog is awesome!
Yes, you’re right! That’s the second time I’ve done that and been corrected in the comments. Grr! And thanks for reading. 🙂
“As long as the green line is lower than the red line, my net worth will continue to grow while I take a nap.”
I would have thought you would want the green line higher than the red. Can you explain?.. it might be I am confusd because it is still early.
You’re confused because I’m wrong. 🙂 I just updated it.
Thank you for the insight into how you are making early retirement work! It is very important for me to see that someone is actually making this work instead of talking about it in theory (which is what I’m doing :-)).
“As long as the green line is lower than the red line, my net worth will continue to grow while I take a nap.”
Should this be green line (income) higher than red line (expenses)? Or am I missing something?
No, you’re right. I just updated it.
Now the real fun begins; a roller coaster ride.
“Everyone has a plan until they get punched in the mouth.”
Touching capital vice dividends during market turbulence often works like market timing… I’m guessing your analytical bent will enforce discipline which is about all you can ask of yourself. The decision to stop re-investing dividends will probably be painful. 🙁
Re: income- isn’t there an amazon program to have folks access amazon for any & all purchases thru your web site? Loyal readers=support!
Random observation: someone who naps and won’t compromise on guac. Wow.
I’m with Angela – I’m not understanding how expenses (red line) should exceed revenue (green line) to get net positive income.
Ack, you’re right! Sorry for being confusing. I fixed it.
Ha! Wrote that as you were correcting your paragraph, apparently.
Aha! Thriftygal’s charts are the magic place the where expenses are capitalized.
Thanks for the high quality output in this blog, and as you can see, the rewards on creative and cognitive activity are not always immediate or palpable, but let’s hope they will come in slowly, (metaphor alert) like the herd at the end of a long summer day, snarfing, contently hobbling and neighing.
I’m a lawyer too so I don’t understand graphs. I do understand you and admire your journey. Keep it up!
Hey TG. I love your graphs. I think I’ve shared this in the past.
It inspired me to create my own chart and graph a bit over a year ago, which frankly turbo-charged the transition to thriftiness and and it’s freedom dividend. It’s hard to know where you’re going if you can’t see a trail of where you’ve been.
I can appreciate how the maths and the spreadsheets are intimidating to some people and may prevent them from taking their financial future by the scruff of the neck and obedience training it. But as a English/History major (with a Lawyer bit chucked in) I can say that if you can persevere with the maths it does yield rewards.
Anyway, I resigned late last year and am just seeing out an extended notice period before I embark on an extended sabbatical. I don’t know if I can quit working forever (unless I adopt an ‘Early Retirement Extreme’ approach) and nor do I really want to, but I can definitely say that if it wasn’t for charting and graphing my progress, I wouldn’t have thought it possible.
The flipside is that charting my progress and realising that paid full time work was becoming ‘optional’ made me question my spending a lot more – as it was spending my future freedom – but it also made it really hard to motivate myself to invest in skills and a career that I no longer cared for.
So ultimately the chart made me resign before I started falling apart and gotten the sack….and I THANK YOU for that.
This comment made my day! And I cackled at my alarm clock this morning which is normally pretty hard to beat. Awesome!!
I’m shocked you still use an alarm clock in your current life situation!
Hey Mr. H…
As a fellow English major I have to say I just l-o-v-e this line:
“… taking their financial future by the scruff of the neck and obedience training it.” 🙂
A shoutout to ERE being more than just a smaller FI budget. Ex: I want a burrito
Normal consumer unit: Burrito sounds good tonight… go pay $10 for burrito on credit card, eats burrito and realizes that left over burrito from last week in frig will need to be thrown out.
End result: wasted food, no thoughts regarding value of money spent.
Happiness optimizer, Humm, I want a burrito… Is it worth the 10 bucks?… yummy guac! Yes it is, but maybe I can cook it myself? Well, I hate cooking, forget it. Wait …look! a coupon for $2 off.
End result: Happily eats burrito at discount knowing full well it was worth the money spent.
ERE, I really want a burrito! I should make one… naw, I hate cooking, but I remember my neighbor saying she was a kick ass cook & rarely gets a chance to show it off. I really enjoy making the neighborhood newsletter, maybe she’ll have me over for homemade burritos and guac if I offer to write up her meal in the newsletter, then other neighbors might be interested in sampling her cuisine. Plus, I’ve been looking for a reason to walk to the park and pick some of those wild flowers; I can bring them to dinner and work on my social skills. After all, becoming a great kisser is on the bucket list and I can’t really do that if I don’t practice meeting people.
End result: Free yummy burrito traded for enjoyable newsletter activity, social skill set enhanced, daily exercise completed, new friend gets to cook, and maybe even practice kissing?!
It’s all in how a person approaches meeting perceived needs, life is a web, not a line. Cash is only one form of capital.
Ha! Wonderful insight.
I had a big smile when I read this part. Thanks for making my boring work day more exciting.
“You’re not very impressed with that number though. I know. I can sense the smirk. You’re saying that I could buy maybe six burritos with that. Maybe. If I declined the guacamole. Who wants to forgo guacamole though? Nobody. That’s who.”
And yes, guacamole is the bomb!
Do you (did you) ever worry that you might want to go back to your “job” but the years long gap will hurt your re-employment prospects? I struggle with that. I guess I am not confident in the math and I think my job skills would regress quickly if I wasn’t using them daily.
Nah.
Cackle.
Perfect response!
If you were worried, you wouldn’t be loving the chill life you bought for yourself.
I have a early retirement goal as well. For a while I feared how I would go back to work in my current field which is software and data engineering. Then I realized I don’t like my career anyway so if I have to go back I’d pick a new career and since I have so much saved I don’t need to earn as much as I do now.
Great post! I’m interested how you feel about letting go fully now that it’s time to put that 4% rule into action. I am 5.5 months away myself and some days am totally ok with it and others I’m in paralysis of analysis mode doing what ifs, running numbers different ways, questioning whether or not I have enough cushion, and blah blah, blah. I haven’t fully decided on how many months of liquid assets to hoard before I pull the trigger … and then layer on the existential fear, and it makes me a bit uncomfortable. But I am ready!
I’m a wee bit terrified. 🙂
First, great blog Anita! Loved your podcast interview as well. It’s OK to be terrified about 4% safe withdrawal rate, the internet is filled with a wide range of what is a ‘safe’ SWR, some so low that it will make you re-consider going back to work! Going by your interests, it sounds like you might be a good candidate to consider dividend growth investing as a strategy. It will increase your passive income (compared to indexing) and give you inflation adjusted raises (if done right). It is not a ‘buy and forget’ strategy like indexing but it can be done at as low or even lower cost than VTSAX. It will give you a lot more confidence on your income stream if you are looking to maintain or increase that positive ‘delta’ between the green line and red line! But if you want to continue indexing, 3.5% is plenty safe for 50+ year retirement horizon. I hope this series helps: http://tenfactorialrocks.com/investing-series/
Your veg recipes are amazing too, we make similar ones (more South Indian veg dishes) at home, but they are all so yummy. Keep up the great blog and lifestyle.
Thanks for sharing!
Gosh, only $49 dollars? And you are such a good writer. That is rather discouraging for those of us who had hoped to augment our passive income with a bit of blogging. If Thriftygal can only earn 6 burritos, what hope do we have? Free sauce packets, I guess.
No!! Try not to think of it that way. I’m a good writer, but I’m bad at everything else about blogging! Web design, linking, SEO, affiliate stuff. That’s why I’d rather concentrate on writing books than being a blogger. 🙂
Dude, in a few years your net worth is gonna be WAY above even your most “spendy” periods in this chart. GOOD JOB. P.S. Where did you spend most of your time in California? Im trying to start this whole FIRE thing working down here in SoCal.
Bay area. Expensive cities are harder to retire early in than less expensive cities. Wow, that’s an obvious sentence.
The $49.20 is just the beginning. If you keep writing the way you are, The number is definitely gonna go away up the green line.. Soon there will be a third line…. may be orange 🙂 unless its too high to be shared 😛
i feel the investment choice is great (vtsax, i also have it)! i feel the returns from the investment is also great! i also feel having a good grip on your expenses is great!. but we have to account for drawdowns when the market decides to go crashing…. yes the market does give about 4% return after taxes, inflation adjusted. on AVERAGE, over the 25-30 yr time period. this means some yrs we will get 2% yr over yr. returns. and some yr. we can get 8%, or 15% or -1%. A problem might come up when we do run into a bear market that gives us neg. or 0 return yr. over yr. during a bear market, i feel its best to try and postpone withdrawal to cover expenses. because the more funds we withdrawal from investments during a bear market! the less funds we will have to participated while the market recovers.fwiw
Excellent comment!
No, that’s a misconception. On average, the market does *better* than a 4% return, inflation adjusted – otherwise 4% wouldn’t be considered a “safe” withdrawal rate; it would have to be lower than that. That 4% of your initial portfolio is a conservative annual withdrawal rate that is fairly likely to leave you with as much money as you started with, or *more*, after 30 years of living off it. The actual average inflation adjusted market return is in the 6-7% range, depending on the date range, for the U.S. The volatility you mentioned is why you can’t just set your withdrawal rate to that 6% and have a reasonable expectation of not running out of money in the long term.
I am not factoring in taxes here (and I know you said you were), but those can vary wildly and might even be zero, depending on a person’s situation. It’s best/simplest to consider taxes as part of the expenses covered by your 4% withdrawals, and not try to subtract them from market returns. The Trinity study expects both taxes and ETF management fees to come out of that 4% as expenses.
(Of course, we can say all kinds of things based on the limited data we have…IMO a little over a century is a very small historical data set on this stuff. But lacking a Tardis…have to go with what we’ve got. 🙂 And I am sufficiently convinced by the available data that I’m fully willing to aim for the 4% in my retirement plans, though I expect I’ll go for a variable withdrawal rate that ratchets up or down a bit depending on how my portfolio is doing. That’s safer than doing blind spending of a certain amount every year.)
My commenters are the smartest and best. 🙂 Wonderful roundup!
Hi!
Thank you for all of your amazing posts! Thanks to you I decided to max out my 403b plan for 2016 for the first time in my Vanguard 2045 target retirement fund! I’m thinking of opening a Roth IRA an investing in VTSAX. Would you say I could invest in VTSAX and leave it alone until retirement? Is that what you plan on doing? Sorry for all the questions. Love your blog! 🙂
Yes, I just throw everything I can into VTSAX and gawk at it. If VTSAX is an option, that’s always my recommendation. 🙂
Any chance you can add a line to the graph showing actual passive income? (you could even add another to show the % increase on an annual basis to see how you are doing relative to the sacred 4%)…to be clear, I am not (politely) asking for $ amounts, but actual vs. projected.
Lastly – how did you set up your VTSAX? (Roth IRA, something else?)…and how does it work to tell Vanguard about withdrawals? (can you tell them this month withdraw 2%, the next 5% etc. based on how the market and your expenses are doing/being projected?…or is this something that is hard to turn off/on and to choose the amount to withdraw vs. re-invest?)
Keep up the good work…your writing is cool…lots of chuckling (not cackling!) 🙂
I haven’t done withdrawal yet, so I’m not sure. I have it in a regular taxable account.
As for the actual passive income, I’ll think about it.
“can you tell them this month withdraw 2%, the next 5% etc. based on how the market and your expenses are doing/being projected?”
Probably not automatically. For this you’d have to figure it yourself and then log on and instruct them accordingly each time.
However, it is easy to set up automatic withdrawals of a certain dollar amount each month, quarter or year as you prefer. You can do this on their site with a few clicks or call them and they’ll walk you thru it. Easy, peasy.
Thanks Jim! Advice from the master, here. 🙂