Many bloggers on the personal finance blogosphere like to share their wealth and their target. I’m not inclined to share my wealth publicly here, so instead of absolute numbers I’ll go with a percentage of my target. I don’t know if I’ll do that kind of post regularly, but I felt like sharing my current status, my strategy, etc…
What’s my plan?
My plan is to quit my corporate job as early as possible, and provide income for my family through 1) investments in index funds and 2) my side “business” (a website which started as a hobby and ended up being a significant source of income for my family).
I make the assumption that my website will bring us a constant amount of money in the years to come, adjusted for inflation. In practice, my website has been generating more than my target since May 2015 (and the number keeps going up faster than inflation so far), so I believe my target there is fairly conservative.
I substract the amount that my site generates yearly, from my target expenses in retirement, to reach the number that I would need my passive investments to provide. Then, with the 4% rule, I compute my target. I assume 0.25% of expenses on my investments, which here again is pretty conservative so far (I’m at 0.05% of expenses with Schwab so far). This brings the 4% rule to 3.75%.
In other words, my target is: Website Revenue + (3.75% * investments) = yearly expenses.
What are my risks?
My plan has several risks that need to be taken into account:
The 4% rule has been criticized lately for not being accurate (although I think it’s fairly safe), so my investments might generate less money than I think. The Side gig counterbalances this risk by providing a significant chunk of the income.
My side gig might end up not making as much money as I think it will, and could ultimately crash. It is also not passive at all and heavily dependent on me driving the business. I’m mitigating this risk with a fairly conservative estimate of how much it generates. I think it would take several bad years in a row for my site to fall below the target at this point.
I might have miscalculated how much money we’ll need in retirement. We currently have 2 kids, a third one on the way, and it’s likely I vastly underestimated how much they will cost us in their teens. My mitigation for that is that I have intentionally increased some of our expected expenses such as taxes, which I think will actually be much more lower. Bottom line, I expect to spend much less than planned in the first 5 years of early retirement, which would let our wealth grow, and spend more as the kids grow up. Our plan also implies living in a big and expensive city (Tokyo) and we will have the flexibility to move to cheaper areas if things become too expensive.
Last but not least, the biggest risk in my plan is that most of my investments/income is technically in dollars, while we plan to retire in Japan. In the graph below, you’ll see my wealth in purple, and my target in green. The target keeps moving because we have a static target in Japanese Yen, but the graph is represented in US dollars. In 2016, the Japanese yen has soared by 20%, and as such, so has my target. Currently, my date for Financial Independence relies much more on the evolution of the USD/JPY pair than our savings rate, or even more than the stock market. Nowadays, a 1% change in the Yen takes me 2 months closer to, or further from Financial independence.
In green, our target. It changes because our target is static in JPY, but the graph is in USD. In purple, our wealth
Recently, looking at this graph has been frustrating, as our wealth in USD is increasing at a very good pace, but the Japanese Yen has soared as well, and our target moves further away. Note how back in November last year, I was pretty much 96% there, and how I would be financially independent now if the Yen went back to its 2015 levels.
August has been a bit uneventful for our wealth: we saved well (66% savings rate in August!), but our investments haven’t done so great, and we had to pay for some yearly insurance which is a big ticket (and I don’t represent it here, although that thing is technically an investment – a low quality one -. I intend to get rid of that thing once we’re back in Japan, and whatever money is actually available in there will be considered a bonus.)
We’re currently at 83% of our target. At the current pace (but that’s wishful thinking: past performance is no guarantee of future results), it will take us roughly 12 months to reach Financial Independence. Of course the markets could go sideways, or conversely the Japanese yet could decide to go back to numbers more favorable to us.