An Aha Moment… Reverse Engineering FI

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It occurred to me last week that I have been looking at this whole FI thing the wrong way.  Building your wealth is a long process and it takes time…1,979 more days in my case but who’s counting?!  In an effort to not feel overwhelmed, I decided to flip the script.  What if I started looking at FI from what I have already saved?  What if I start looking at it with an attitude of abundance and not destitute (a tad dramatic but I love the striking opposition it induces 😉 ).

The basic formula for FI is 25 x yearly expenses.  Whatever that number equates to is considered safe to use a 4% rate of withdraw.  If all these numbers are true, we can instead flip it around to calculate how much I would receive each month if I quit working today based on what I have already saved!  Here’s a semi random example:

Bianca has $333,000 in assets.  Divide that number by 25 and you’ll get $13320 per year which is equal to $1110 per month.

$1110 per month.  That is how much all my years of work combined have afforded me to live.  For reference, I have been working and earning a W2 since 1993 when I was 14.  That’s 24 years of working for the man and all those years of labor have afforded me 1110 dollars per month of FREEDOM.  Isn’t that incredible?!  Not from a high or low standpoint but just that it is actually calculable?!  Isn’t it strange to compare your future life’s enjoyment based on the amount of hours you worked to earn such jubilee?  It’s hard to wrap my brain around!

So the question is, forgetting all tax implications, could you live off $1110 per month?  If forced to do so, I’m fairly certain my answer would be yes.  I’ve crafted my life in such a way that I have few responsibilities which results in my cost of living being lower than most.  Granted, my studio is paid for and I would likely have to stay there, I’d have to remove all travel from my agenda, sell my car in favor of my bike, eat a shit ton of beans and rice (which I do anyway), and never get sick.  Pretty risky with some of those variables but I could probably make it work, and many people do.*

For some reason, looking at the FI equation in reverse has been a huge aha moment.  Calculating the numbers with what I currently have and not this mystical number I am aiming for makes me feel more…I don’t know, at ease.  Like, not so desperate to work my ass off and save every last dime.  I could retire now…kinda, but I am choosing not to.

You see, I don’t want to frugal myself into a corner.  As much of a homebody as I am, I still love to travel and explore new lands and cultures.  As much of a home cook as I am, I still love to try new restaurants on occasion which leads to more delightful copy cat meals at home.  As sober as I want to pretend to be, I still love having a glass of wine or two with a good meal.  All that fluffy goodness in my budget would be stripped from my relatively poor outstretched hands!  So I won’t be leaving work anytime soon.  I will, however, be cutting back on my self-imposed strict schedule.

Last years challenge of working 100 trips a month was super lucrative but, as much as I love my job, sometime around October I started to dread the beginning of each month when the hourly tally was at 0.  All I could picture is those hundred flight hours I would have to complete to hit my monthly goal, the nights away from Bubs and my guy, and all the hours in between that I wasn’t getting paid sitting in random hotel rooms away from my life.  While there are plenty of people who work more hours and more overnights than I, the point is not to compare but to know what you are capable of without burning out.  I have 5.4 more years to go…I don’t want dread to follow me every step of the way and the good news is that I don’t have to.  This year I am working a bit less and have loosened the reins in my budget to make room for more community and travel related adventures.  If you are feeling that same burnout and have the opportunity to work a few hours less per week, I give you my full blessing.  What is the point of reaching FI if you are completely devoid of life when you get there??  

Bubs & I Relaxing (not running) Into FI

The worker bee in me looks at this equation with another dimension… Just because $1110 is what my current savings would get me, that doesn’t mean I couldn’t get a little part-time gig to add to my monthly income and expand my social circle.  You need to do something to keep busy in retirement, right??  I could start crafting and selling jewelry at street fairs again or pick up some shifts at a restaurant…I have always been fond of the service industry and the free food that comes with it….  And there it is, I put myself right back into the work force, but this time on my own terms.  It’s hard to break a habit you have been contributing to for so many years! 😉

** So where are you at in your journey?  Has this exercise helped?  Have you reached a livable wage or are you still working in the red (been there!)?  Let’s chat! **

Until next time…

*SUPER EXERCISE…Did you know the current poverty level in the US for a single person household is $12,060?  Have you ever had to live on that little?  If you are curious, check out this site called SPENT to give it a shot.  There is a little challenge that will walk you through the real life issues of our unemployed or underemployed living on the bare bones budget of $1000 a month.  Pretty eye-opening stuff and I am so grateful to not be in that position.*

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64 thoughts on “An Aha Moment… Reverse Engineering FI

  1. “That’s 24 years of working for the man and all those years of labor have afforded me 1110 dollars per month of FREEDOM.” I never thought about it this way either. I always reverse engineer where I’m trying to get to. But this is more like, what has the sum of all of my efforts resulted in? In the form of a semi-guaranteed monthly income. I like it. It’s a good way of looking at it.

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    1. Thanks, Tim! Semi guaranteed income is a great thought as well. It’s nice to know I am halfway to where I really want to be. Honestly, most of that was gained in the past 2 years so I’m sure it will go quickly from here but even if it doesn’t I feel I have a better grasp on things today than I did last week. That’s always a plus! 🙂

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      1. Haha – Well, I didn’t want to either! Had I not made some rather LARGE financial mistakes or heard about FI at a younger age I would have been able to retire years ago. But that is all part of life – we only know what we know. 🙂

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  2. What’s funny is I recently started tracking how much income I’m earning outside of my 9-5 each month and it hovers around $400 – $500 each month. This comes from stock dividends, a little blog income, and mostly side hustle tutoring, but it’s encouraging to see just how much of my earnings come not from having a normal job. If I were to quit my 9-5 I definitely think I could manage to get by.

    I’m like you though, just because I might be able to walk away from a job relatively soon and find ways to get by, I want the freedom to travel and have experiences without being overly frugal. The trickiest part about FI is knowing when it makes sense to walk away and when it’s better to stick it out for a few more years of high earning. Good for you for “loosening the reins” this year, the journey to FI should always be sprinkled in with moments of fun and experiences 🙂

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    1. That’s awesome! I never look at my dividends individually though I know there are many investors that do. I have all these big ideas for side hustles after I’m done flying and it’s nice to know I won’t have to solely rely on them for my entire income.

      My one caveat is insurance. That is the variable that will drive me to stay longer than necessary. As long as my work rules don’t change (not having to fly a minimum) I’ll keep this gig as long as I can. This country needs a better healthcare system for me to feel safe giving mine up.

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  3. I like the thought process, Miss Mazuma! To date, my labors have earned me a decent amount of monthly income, but it’s not enough to get by while I’m still supporting a family of 6. Maybe once the kids move out it would be enough to get by, but not right now, so I’ll keep working. Which means that by the time all of my kids have moved out I should have way more than enough to live an abundant lifestyle!

    One other way I like to flip the retirement math is to figure out how much I’ll need to cover an expense. For example, if I want to be able to lease a new car every few years and think I’ll need $500 per month to do so, then I’ll need to invest $150,000 to perpetually fund that $500 monthly expense in retirement. To figure that out you just take that annual expense and divide it by .04 ($500 per month car payment x 12 months = $6,000 annually. $6,000 divided by .04 = $150,000).

    This is a great way to see how ridiculously expensive some expenses actually are.

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    1. The kids definitely add a few wrinkles (along with so much joy!!). I don’t think any side has it easy, really. Going for FI as a single is difficult financially and emotionally when you don’t have someone to share the burdens. Being that your a single income that doesn’t help either but it definitely gives you a lot to focus on the end goal – more time with your wife and kids. Until then you bust ass!

      As for your math, now your getting too deep for me. 😉 Man that is expensive! It’s probably best I don’t start doing this. I may have to give up my fancy raspberry addiction!

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  4. AdventureRich

    I don’t know why I haven’t thought of FI this way… I like it! We are no where near being able to retire, but this will be a great tool as we plan for the future!

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    1. I can’t think of the years anymore. I realize 5.4 years isn’t a long time in the grand scheme but in the moment is seems gargantuan. This method works much better for me. Now, if only I could find a nice climate to live in with such a low income… something to think about.

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  5. I’ve never calculated our years until FI because I firmly believe there’s no point in wishing life away. And that’s exactly what I would do. I would try to rush or get so focused on the countdown. It’s also why I try to be so vocal about doing what you love NOW. When I see people absolutely dread M-F and treat 5-15 years like pulling off a Band Aid, that makes me sad. That’s a lot of life to trade for a question mark.

    Great post and great perspective!

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    1. You’re so smart…don’t do it!! Besides, you have other grand things to calculate such as the cost of diapers for the next 2 years. 😉 As for the 9-5, I truly don’t know how people do it. I applaud every last one of em. But to do it with dread? Ugh. I can’t imagine.

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  6. Another fun metric you can start tracking: What your stache earns per hour (I like to use working hours, rather than constant time, to compare it to a minimum wage worker).

    If you had a 333k stache as the theoretical Bianca in your hypothetical in this post does, that’s like having a whole extra person working full time at a minimum wage job for you! 😀

    See this thread for more:
    https://forum.mrmoneymustache.com/welcome-to-the-forum/what-are-your-soldiers-(dollars)-paid-per-hour/

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    1. This is why I love you!! Your brain can twist shit all around and make the result more amazing than I could ever imagine! Yes!! I will take one extra person (though I hope they are pocket size to keep food/living costs down) to be my minimum wage earner. Sign those paychecks straight over to me, little guy. 😉

      PS – Damn you for sending me down the rabbit hole you call a forum. You know I NEVER go on there for fear of not making it out alive. 😉 In this case, I am happy to report I am still breathing.

      PPS – I liked one of your comments about FIRE “the two most important variables for age when you FIRE seem to be: when you find the concept of ER, and how much financial baggage you have when you do”. Spot on!!

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  7. I agree with you that living off that much would be extremely challenging and not really a fun way to live. You’d have to hope for everything going pretty much perfectly. I take it ss wasn’t factored in there? lol! sniff sniff. But I think ANY amount brings you one step closer to breathing easier. Like you said, you could get a part-time job or do some side hustles every month. But I do agree that you somehow have to strike a balance in the present vs future you. It’s pretty much my theme for Monday’s post. I’m constantly at odds with myself about certain financial things. Right now I’m getting ready for an all-day side hustle on a sat. Granted, it’s reffing volleyball, so not terrible, but it’s $250. I’m applying that to future travel. Part of me is happy I’m doing it, and part of me really wants to just chill out from a long hard week of work. It’s tough.

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    1. Or I could move in with you?! Haha – Our babies would love each other! 😂

      Good for you for taking the extra work. It’s hard to decide between cash and relaxation. I think you know where my head is at these days. 😉 I hope to get out there soon. I want to taste the delights of your garden!!!

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  8. ChooseBetterLife

    I think about how we made it work in college- roommates, cheap apartments by the train tracks, walking to school, tutoring, etc. I’m grateful that things are easier now, of course, but also remember the quality time we had with friends and neighbors that cost $0.

    On a side note, how does the new Cuba policy affect your trips? We were planning to go this fall but are now hesitant to book tickets.

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    1. It’s so true – I think when you are younger you are happy to be out on your own and have something to prove. As you age you get used to creature comforts and aren’t so ready to give them up in favor of, say ramen noodles! 😉

      Cuba is going to be a crap shoot. I am glad my BF and I went when we did (last month) because I’m not really sure what will happen now. As it stands, SWA is still flying there. I think if you just keep your receipts you should be good but this will all be changing quickly. If you do go I would recommend the Airbnb we stayed in near old town!

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  9. There a was a thread about this on reddit’s financial independence subreddit a while back, and I remember realizing that I’ve earned a return of $2,984.96…in the red! Try living off of that 🙂

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  10. zeejaythorne

    This is actually the way I think of it already. My 3.5% SWR (I’m conservative in money), is just under $500 yearly. I have a ways to go, but my investing started way late.

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    1. Why didn’t you tell me this sooner?!! Well, I probably wouldn’t have been ready. All these numbers can be discouraging or encouraging on different days. I feel like I started late also but I am amazed at how quickly things are shaping up. Patience is a virtue I have not yet mastered!

      Liked by 1 person

      1. zeejaythorne

        Me neither! I keep dreaming and scheming and then looking at the tiny number. I often forget that I’ve done a lot to change my situation in the past 1.5 years. Sigh.

        Liked by 1 person

  11. TheRetirementManifesto

    Hey Miss Mazuma! I like the way you think about things in ways that others don’t. It refreshing, and a nice “voice” in the blogosphere! I applaud you for decided to slow the hours a bit. Life’s about The Journey, not The Destination!

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  12. I think one of my biggest fears with jumping into FI would be that I hadn’t saved enough – but your reverse engineering really puts things into perspective! Knowing that I had $1100 a month would definitely help push me maybe from a full time job to at least a part time job, giving myself more time to spend on a side business idea or to just spend with family. It’s a great way to give yourself that extra boost of confidence.

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    1. Yes! Knowing that you don’t have t take a full work load on to survive is such a good feeling. That being said, with healthcare what it is I will be keeping my job as long as I can. That is the one variable I am not ready to mess with!

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  13. Hey Mazuma
    it’s very interesting article about reverse engineering, this is not my field but today i read your article and get inspiration, and now oi bookmarked your blog Mazuma
    hope so i visit daily your blog and learn something new
    Thank you for sharing
    Swalove 🙂

    Like

  14. I think this is a great way of thinking about the journey and does help me feel a little bit better about it. It’s a reminder that the power is in your hands, and this is a journey under your control.

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  15. Brandon

    Yes, I love this way of thinking about FI!

    Sometimes I break it down into specific expenses. Like if my phone bill is $26/month then I only need $640 ($26/.04) to pay that bill indefinitely. It’s a fun exercise to do while driving or falling asleep as well as something to keep me motivated.

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    1. I like that idea though it would do nothing to help me get to sleep as I would be obsessing about number crunching for hours!! I do like the equation though. May be a good exercise for me at breakfast. 😉

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    2. jubilant jill

      Doh. I’m pretty sure you need $7800 to pay a $26/month phone bill. You forgot to multiply your $26/month times 12 months.

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  16. Interesting perspective, as usual, Miss M. This kind of thinking lessens the burdens we put on ourselves to reach FI.

    We live on under $3K a month including vacations. So, yeah, I could live on $1200/mo. And I can always move to another country. That might be my long term care insurance plan because I’m certainly not paying for a policy with a company that can raise the fees later on, when I most need it.

    I lived below the poverty level for years in NYC. My 2 saving graces were a heavily subsidized apartment, and unemployment. And to think, Mr Groovy still married me even though I was a “teat sucker.”

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    1. 3k is cushy and my third tier of FI end goal. For now, $1110 wouldn’t be terrible but it would be more surviving than loving. Definitely possible in a different country…even this one outside of the city. I guess I want to know I’m in the safe zone without having to make such drastic changes such as moving. The real variables are healthcare and long term care as you mentioned. So expensive!!! Those two alone could be the difference between standing in your own or sucking teat. 😉

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      1. jubilant jill

        I’ve just purchased a year of health insurance in Spain for $188/month (at today’s exchange rate) for myself, my husband, and daughter. It’s with $0 deductible and $0 copay as required to get a visa. Rent for a two bedroom in our small town center is $340/month. Basic living expenses will probably by under $1300/month. For $2000/month we could really live it up.

        It’s cool to think that if you rented your studio out you’d have even more than $1110 per month!

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        1. Right?! But then I would still need somewhere to live. Can’t beat your COL in Spain. I dated a man in Barcelona for quite some time and considered a move there but realized the cost to get my dog there wouldn’t the worth the overall relationship.😂 What area are you in? Spain is by far one of the favorite countries I have visited. In fact, I’m working on a post about the Camino de Santiago right now!!

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    1. Definitely. I am definitely more motivated by looking from the perspective of gratitude. Working towards something has always worked well for for me.

      Thanks for stopping by and taking the time to comment!!

      Like

  17. Funny you mention in this post the option to use a smaller stash and part-time work to cover the difference with your expenses. This was exactly what was discussed during our meetup last weekend in Utrecht. Seems to be a more favorable way to achieve part-time RE in Europe, so without being FI. Pretty interesting discussions, also limits your overall tax burden significantly.

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    1. Haha – just so you know, I was lurking at your meet up and stole all your ideas to write this post. 😉 But seriously, doesn’t it change the conversation? My whole perspective has shifted. I know I will be working once I am FI – I’ll just be doing work I choose. I love your point about limiting the tax burden. Bonus!!

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  18. Daniel

    With 600K in liquid assets (400 retirement, 200 cash) I walked away from 6 figure job this February. Although the original plan was to get to a mil before calling it quits, I couldn’t help but feel that my soul was being dripped dry. At some point I had to realize that even if we hit a million and I put in my two weeks, on the third week, the market could tank and we could be back to 500k. So then I asked myself if I would be willing to postpone taking a life chance for another 15 years until we worked back up? Nope. Ultimately, I had to reach peace with the fact that at 600k, we had achieved “enough” to afford some time off and come to find that for me, FIRE isn’t about retiring but enjoying the freedom to pursue more meaningful work.
    Best,
    Daniel

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    1. Wow – congrats!!! Your soul “being dripped dry” is such a beautifully tragic image. 15 years to get to a mil isn’t worth it at that rate especially when you factor in the market! I would very much prefer to work because I want to and not because I have to. Though I do love my job, it doesn’t fulfill me in the ways I really crave. You made a super decision to take a chance and give yourself the freedom to pursue that meaningful work and I’m guessing you have no regrets. 😉

      Thanks for taking the time to comment!!

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  19. Thanks for pointing out the reverse analysis. It helps with deciding when to make the shift from the accumulation stage to the cash burn stage. Is there enough, sure. One has to plan for occasional finance curve balls or opportunities. Some else mentioned insurance, which to me somehow has to be factored into one’s Maslow’s Hierarchy of Needs. A little extra padding will compensate for any “black ice” one comes across as we all pass by “the man” who will have the look of astonishment on their face!

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    1. Insurance, overall health, market fluctuations… those are the biggies when reaching for FI. I try not to get too swept into it because I don’t want to condition myself to use the “one more year” excuse. That being said, I can’t imagine what it will feel like to reach FI and actually start using my savings! Like, how do you flip the switch?! I have a little more time before I need to prepare for that. 🙂

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  20. You know I have never done this. Not even close.

    Our family of 3 excluding the mortgage (which is paid for by Airbnb) lives on $16K a year without any sort of frill and only eating cheap cuts of pork and chicken for dinner. Do I want to live that way in retirement with extra expenses like health care looming? Lord no. We can retire right now but we have too many liabilities that shouldn’t be dropped. It’s nice to think that we can though. We would get 1K at a 4% withdrawal and hope it’ll last 50 years (which is cool) but there needs to be cuts 🙂

    I’m doing the spent.org thing right now and it’s quite depressing.

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      1. Did your family pet have to suffer?? And now rent is due again! It is so devastating and I can’t even imagine.

        I am beyond grateful that minimum wage isn’t my current reality. I remember when I first moved out on my own I was working 3 jobs and putting myself through community college full time. Obviously something had to give and school was what I chose to give up. My focus was on work and stability over education. I’m not saying that was a good choice or would be good for anyone else, that is just the choice I made and I have been happy with the outcome. If you don’t have an education you have to have a fair amount of hustle in you or shit ton of luck. I had the hustle. 😉

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          1. That’s so scary!! I didn’t get that question, thanks goodness. It was hard enough having to decide to pay for the vet or let my pet suffer. I paid for the vet and wound up broke. Damn…

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              1. For real! No more talk of dead pups and heart problems. Time to focus on making/saving more while we have the opportunity to do so. I will now end this conversation with a rainbow and red balloon just to jazz things up a bit. 🌈🎈

                Liked by 1 person

  21. Great post.

    Our thinking is similar: make sure you enjoy the journey to avoid that you burn out while going for FI.

    Knowing our numbers allowed us to make some changes in our live. It is great.

    Like

  22. Elizabeth

    My dad opened me up to this concept when I was in my 20s, and I didn’t really get it at the time but have thought of it often since. He was explaining his frugal mindset and how he always thought in terms of “if this is the last dollar I ever earn…will I be OK or how will I survive?” It motivated his accumulation mindset.

    I use it to this day. Whenever I update our net worth spreadsheet I think that if we retired today we could spend $x per year. I sometimes tell my husband the new number and see a bit of the amusement and confusion that was probably on my face when my father introduced the concept to me. We are still saving so we can boost our retirement lifestyle, but it is a comfort to know that I COULD quit and we COULD make it just fine if we both became disabled and lost our jobs tomorrow.

    Like

    1. Your Dad sounds amazing! I love that concept “if this is the last dollar I ever earn…will I be OK or how will I survive?” 🙂 Such a great way of looking at things. I didn’t have financial education in my home (or school!) but thank goodness I found it when I did! Thanks for sharing your story. I will definitely be passing your dads words of wisdom on!

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  23. I have a livable wage at this point although not having any health insurance would definitely scare me a little bit since I have no idea what will happen in the future around health care. But cutting out the healthcare factor I definitely could retire 🙂 That’s the main reason I’m sticking around. I’d rather grind for a couple of extra years than run out money and have to go back to work when my skills have eroded.

    Like

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