When I was first married, I did not yet have a smart phone, but my husband did. I was fascinated by the map function on road trips, watching the glowing blue button indicating our position as it moved along our path.
It was even more fun being able to update the map with our position and have the app recalculate how much closer we were.
On the road to retirement (a common metaphor), we do need to assess our position periodically, and ensure we are either on the path we planned, or to recalculate the directions to get us to our destination.
At the end of every December, I calculate my net worth and track my spending, which I have done for many years.
For the past few years, each summer I have been reevaluating my financial position as far as retirement.
August is a good time for this, as I have to start thinking about my schedule (and contract) for the upcoming academic year. That is to say, I have to decide if I want to keep my workload the same, or ask for a reduction in work (and thus a reduction in pay).
For this exercise, I recalculate my net worth, but use my tracked spending (noted at the turn of the year) to project my costs in retirement.
Making adjustments
Of course, my current spending doesn’t account for some of my expenses in retirement.
I hope to spend more on travel than I have done during the past few pandemic years.
Last year I considered some additional categories, such as health insurance, and lumpy costs (replacing major appliances and even a car once or twice.)
Just those three categories add $3500 a month to my proposed spending.
The tax burden on my investments is still up in the air, as there may be a few ways to reduce them in the future.
Depending on how much of a safety margin I desire, I would like to see my savings total at least 25 times my projected spending. 30 times my spending would be safer.
Once we hit Medicare age, our spending on health care will hopefully drop, bringing down our needed savings; but a little extra money seems safer than not quite enough.
What’s in the fuel tank?
At least 1 reader (OK, exactly 1 reader; thank you, C!) asked about allocation. I still don’t feel like sharing exact numbers, but it was helpful for me to think about how many years’ worth of spending (x) is in which account, and in what type of investment.
No more beating about the bush. My liquid assets come to 24x my projected spending, and are divided thus:
Pretax retirement investments: 403(b), 401(a), etc.: 6.3 x.
Investments here are in either a Target Date fund or in bond and stock funds: stocks 4.2 x, bonds 1.6 x, cash: 0.5 x.
Post-tax retirement investments: Roth IRAs: 2.2 x.
My Roth IRAs are heavily weighted towards stocks (at 2.0 x, with cash at 0.2 x)
Taxable accounts: 15.5 x.
This is divided into 13.7 x stocks and 1.8 x cash, which is spread between my brokerage account, my secret savings account, and the regular savings and checking accounts.
Overall, my portfolio ends up 83% stocks, 6% bonds, and 8% cash.
So, where am I?
I have a better idea of where I am on the road to retirement, but I have to choose amongst various alternate routes.
At this point, I just have more questions. The answers will guide me, though–as with any road trip–sometimes the answers are different from one day to the next.
Is the interstate straight and smooth, with blue skies ahead? Or is there an exit for a scenic coastal route, with stop lights and roadside attractions? Or is there a storm coming, and I’d rather stop at the motel here rather than pushing on to the one we were planning ?
Enough of the metaphors…
Have I hit my retirement target?
The answer to that is definitely: no.
If I have to wait until I have 25x saved (but think 30x would be safer), I’m just not there. Though I note that 24x is awfully close.
There is a good chance that I will hit 25x comfortably in the next few years, and probably exceed it, if I keep putting money away for retirement and I get positive returns on my investments.
Of course, inflation might push my spending higher, and there is no guarantee over the short run that investments will go up (see the first half of 2022…).
Do I have enough cash to retire?
After all, I was recently fretting about the sequence of return risk, and wanting to have 5 years’ worth of spending somewhere safe, in case all my investments take a dive after I irrevocably (*) quit working.
(*) Of course, I can always go back to work within a few months of retiring. But getting licensed, or even credentialed, is a pain in the patoot; and when I retire, I want to be able to retire.
Anyway, it turns out I am a little ahead of where I thought I was, with 1.8x my projected annual spending in cash. That’s definitely not 5x, but more than I thought.
To save the remaining 3.2x may take some time. If I focus on saving cash (rather than reinvesting dividends), keep my salary the same, and assume I never earn a bonus or receive a windfall again, this will probably take me 8 years. At which point my spending may be less as Mr. PiN can take advantage of Medicare coverage.
Eight years is a little longer than I prefer.
However, I can pull other levers to shorten that timeline: stop contributing to my tax deferred retirement account and save the cash instead, sell stocks while I am in a higher tax bracket, cut spending further, work harder for a higher salary or bonus.
The decision about each lever to pull comes with its own pros and cons, of course.
What if I want to slow down at work now?
Considering how I feel, and how work is going now, I don’t think I can plan to keep going 100% for a few more years and then stop. I need to take care of myself by cutting back a bit more. What would this look like?
I could cut back to a bare minimum of work, earning just enough to cover living costs, and work for 12 more years.
If I never put any more money into my investments, assume my returns will beat inflation by 2%, and let the money ride for another 12 years–I should have 30x my projected spending by then. I won’t be retiring early, but I’ll have 12 years of a lighter work load. If I see returns of 5% after inflation, I’ll have 43x my spending; definitely more than I need.
Or, I could work nearly full-time and divert my contributions from my 403(b) into a savings account.
This could bulk up my reserves until I decide to pull money out of my retirement funds; this would accelerate my retirement date by several years.
I could consider an in-between option.
I could negotiate a lighter schedule to fit a more ideal lifestyle (could I actually take a 4 week vacation? Routinely take a 3 day weekend?), while also putting some money aside (maybe some in cash, and just the minimum in retirement accounts to capture the match).
How much am I willing to cut back?
As I approach discussions about my workload next year, this is the $64,000 question.
My fantasy is to work just 1 or 2 days a week–enough to keep my hand in, but with plenty of time to do other things out of the hospital.
However, that’s not enough to qualify for health insurance through my employer. And if I don’t get that, then whatever I take home, most certainly won’t cover my costs.
If I am going to work enough to get health insurance, then I’m putting in some decent hours. No long vacations or super-short weeks for me.
If I have to work that much, I want to cover my living costs and be able to put money away–at least for now.
Which means, circling back to the original question, that I don’t think I will be cutting back much next year. Not as much as I hoped, anyway. Unless I can figure out how to get compensated for some of the other stuff I have been doing or would like to do…..
Have you cut back on clinical work to glide into retirement? If so, did you wait until you were FI to do that? What would you do in my shoes?