Partial FI: “Retire” in Half the Time

Financial independence or early retirement, just like paying off debt, can be a major mountain to climb, especially if you are just starting out.  A mountain that once calculated, can seem very overwhelming or nearly impossible to overcome which can sometimes lead to a stop in momentum towards reaching these goals. 

This is true in all professions, but I know based on first hand experience it can be especially true in the healthcare world especially during times like these.  It’s hard to see how you could grind this hard, day in and day out yet still have 10, 15, 20, 25, 30 years left until you reach financial independence/retirement. 

However, what if there was a way to get more flexibility and more time while decreasing your stress?  

Most of us don’t hate our jobs, we hate being chained to them. 

This is where partial financial independence comes into play.  But before we fully break this down, let’s discuss how to calculate our retirement numbers again to better understand the power of partial FI. 

Calculate Your Mountain

To calculate our own mountain, it’s not a hard equation.  We use our annual spending and the 4% rule to see how much money we need to retire on. Then we use our current portfolio with our annual contributions and a simple compound interest calculator to determine how many more years of work we have until retirement. 

To simplify further:

• Annual Spending x 25 = Your Retirement Number (assuming a 4% safe withdrawal rate)
  • This number is your target portfolio amount where you can retire safely with minimal fear of running out of money. 
• We then take our current portfolio amount, annual portfolio contributions and plug it into a simple compound interest calculator like this one. 
  • Although many online calculators will do the same.
• We use 7% as a conservative interest rate for growth. 
• Finally we input different years into the equation until we hit our target amount

Brandon over at the Mad Fientist created his own calculator which also helps calculate your years to financial independence/early retirement as well. 

And remember, we don’t assume any outside income once we hit our retirement age. Meaning, we don’t assume social security, inheritance, or making any income at all during this time which is unrealistic for most. 

The Shadow

For some, they see their number and right away realize how close they are to the peak.  Their number is very achievable under their current plan.  They need to just hold steady and they will be at the summit well before most climbers.   This often results in a sense of excitement as early retirement really might be a reality for them.

But for others, seeing this number, removes the cloud layer hiding the peak, and they can really see how far of a climb they truly have left.  This information can really bring on some negative thoughts and feelings as this mountain seems impossible to climb.  

This is where the climber begins to determine if the climb is even worth it.  They realize there are tools to help but either these tools still don’t work for them or it still isn’t enough help to make the climb manageable.  

The climber begins to think that maybe it’s just easier to slow the pace, live with the stress of always climbing the mountain, and if they make it to the top.. great and if not, oh well.  Maybe someone else will help carry them up… or maybe they will just die on this mountain…

But What if We Just Climbed Part of the Mountain??

For some people, climbing the mountain non-stop until they reach the peak just isn’t realistic.  Especially if they aren’t enjoying the climb. 

So what if we only climbed a portion of the mountain and then took a helicopter the remaining way?  

This now lowers your stopping point on the mountain. Meaning, the amount of time that you need to grind away day in and day out is cut considerably.   Yes, you still have to pay for the helicopter, but the ride in the helicopter is much easier than climbing that mountain yourself.  

Let me explain

If you live on $40,000 per year.  Normally, ala the 4% rule, you would need $1,000,000 before you could safely retire.

But if for example, you could work part time, or by contract only, or at a different lower paying job you love and were able to make $30,000 per year. Then you would only need $10,000 annually from your retirement portfolio to meet your expenses.

And using the 4% rule, if you only need $10,000 withdrawn from your portfolio annually, then you only need $250,000 in total to preserve your money over time and make sure it never runs out.  

By reducing your target number from $1,000,000 to $250,000, you can significantly reduce the amount of time you need to grind climbing the mountain.  

For example, if you have $0 in your portfolio but invest $15,000 per year, you would hit your partial financial independence number in 11 years.  However, to reach your full retirement number it would take you 25 years.

You just earned 14 years of much more enjoyable and stress free work and life balance.  

What if Your Part Time Job Supported Your Annual Spending??

If in theory, you already had $250,000 in your portfolio now and you were able to work part-time and make enough to cover the entirety of your living expenses.  Then you’d be able to reach traditional financial independence/retirement in just over 20 years without contributing another dime to your portfolio. 

Partial Financial Independence

Partial FI is really just a way for you to lower your target retirement number, which is just lowering your stopping point on the mountain.  Sometimes it makes more sense to work longer but enjoy the road on the way there.  

Partial FI slows your track to traditional retirement because it lowers your income but dramatically improves your control over our most precious resource: time. 

If you could work your current job 2-3 days per week or just 3-6 months out of the year, it might be worth it so you can enjoy your job more and more importantly, your life.  

This path might not be for everyone, but it’s an option for those of us who feel like they can’t see the light at the end of the tunnel.  

Conclusion

We all only have the same hours in the day, so sometimes it makes sense to take back more of those hours now in the earlier stages of our life before our loved ones pass, our kids leave the house, or our bodies break down.  

The mountain will always be there to climb if you want to grind away on it again.  Sometimes, it’s easier to pick your own stopping point.  I promise, the view is oftentimes just as good. 

As always, comment below with any questions.  Or if you have any personal questions, feel free to email me directly at fiscaltherapist1@gmail.com