Early Financial Independence: The Tapering Plan (Fed Inspired)

by FI Fighter on May 16, 2014

in Thoughts

Duckies

Just as the Fed has been tapering down on its bond purchases, reducing a little here, and a little there, I’ve been thinking about doing the same thing at my job. You know, reducing a few hours here, taking some more days off there, and so on. As I get closer and closer to early financial independence, I must confess that I’m getting more and more anxious with each passing day.

After reading Dividend Mantra’s post earlier this week, The Journey Home Is Bittersweet, I’ll say that I’m even more motivated and inspired than ever before to leave a bad thing behind and to start my own next chapter in life. Many congratulations to Jason for having the courage to make the move, and I wish him all the best in his future endeavors! Life is about to get a whole heck of a lot more exciting! :)

The truth of the matter is, I’m only really still gainfully employed as an engineer because I need the paystubs to qualify for more loans. Otherwise, I would leave now and take on something else that’s a whole lot less stressful… albeit, at a lower pay as well. The days of putting in long hours because of the burning passion and intellectual curiosity of solving a challenging engineering problem are long gone. Too many bridges burned (I’m burned… out as well), and quite frankly, the ROI for my efforts leaves a lot to be desired. To be clear, ROI in this sense extends beyond just monetary compensation.

In a perfect world, I’ll be able to max out my 10 loans before bidding adieu to the cubicle life… or at least try to get as close to that mark as possible. Why? Well, once I walk away from my six figure salaried position as an engineer, I doubt any lender will want to do business with me again. Especially since my debt-to-income will be through the roof! Too much debt and no earned income… Doesn’t sound like the makeup of an ideal loan applicant, does it?

Anyway, if the Fed can do it, then so can I, right? Besides, I doubt I could just call it quits cold turkey, anyway. It would be a huge shock to the company, and especially to my immediate team. Although I’ve professed my strong desire to terminate my own employment on this blog many times before, no one in my “real” life (work) knows about any of this financial independence stuff. As far as their concerned, I’m just like everyone else — a team player who drinks the company kool aid and intends on sticking around until 65.

So, I’m thinking the best way to walk away is to do it slowly… Just like with this whole easing of Quantitative Easing that the Fed is trying to accomplish. First, I’ll stop showing up 40+ hours a week… Then, I’ll see if I can get away with just working 4 days a week… Until finally, I’ll just make that final announcement (maybe a year from today?), and ride off into the sunset. If I can introduce some gradual tapering, I should be able to cut the final cord with relative grace (I hope).

I think cutting back on the long hours will do a lot of good. It’s amazing how much more refreshed you feel with some extra time off. If anything, it will help make the next year at work a whole lot more tolerable. Perhaps, it might even reinvigorate me enough to continue working just slightly longer so that I can build up an even larger safety net?

At this point, I want to ask readers, and other fellow bloggers –“At what point would you feel comfortable with starting the tapering off from full-time employee to (f)unemployed?

In other words, “How much net worth/cash flow would you need before you could declare yourself “ready” for tapering? Or, at what age?

I would love to hear your thoughts on this!

Related Posts :

{ 31 comments… read them below or add one }

1 JasonNo Gravatar May 16, 2014 at 4:47 am

I’m a six-figured engineer as well, but with a family of five. I think when my passive income hits $40k I could be ready for tapering.

Reply

2 FI FighterNo Gravatar May 16, 2014 at 4:04 pm

Jason,

Thanks for sharing! $40k is a very solid number and one that would more than be enough for my own situation. I’m at about that number on a perfect month of cash flow with no issues for each property. If only every month could be perfect, I would be ready to call it quits now.

Best of luck!

Reply

3 No Nonsense LandlordNo Gravatar May 16, 2014 at 5:31 am

Getting 10 loans will be difficult. It’s possible, but most banks only allow 4, or possibly 6.

I have ~22 months left. The missing W2 is one thing I am worried about. I have plenty of income, and a strong 1040 and balance sheet, but not a solid income that banks like.

Reply

4 FI FighterNo Gravatar May 16, 2014 at 4:06 pm

Eric,

Yeah, it really depends on the lender. I’ve gotten to 5 pretty easily, so I’m hoping the next 5 won’t be so bad. I have Rental #1 off the books (debt) now that I’ve seasoned for 2 years of tax return. That one is my largest loan, so that should help on the debt-to-income side of things.

By this time next year, I’ll have another 3 rentals off the debt books. Just gotta keep it up for awhile longer.

We’re both getting closer! :)

Cheers!

Reply

5 Stefanie @ The Broke and Beautiful LifeNo Gravatar May 16, 2014 at 5:49 am

Crazy that the ROI on your efforts as an engineer has not been what you’d hoped. I think of that as such a great, well paying job. Of course, I know nothing about it :)

Reply

6 FI FighterNo Gravatar May 16, 2014 at 4:08 pm

Stefanie,

From a monetary point of view, the salary has been great… probably more than I have any right to ask for. It’s all the other stuff… corporate politics that have me wanting to escape.

That, and the stress. It’s no fun living everyday surrounded by other people who always feel like the sky is falling when things go wrong… It takes away all the fun outta life.

Enough is enough.

All the best!

Reply

7 My Dividend PipelineNo Gravatar May 16, 2014 at 7:41 am

Last summer I started my own version of tapering, but ironically I received a promotion that requires six days a week with a large salary increase. I sighed, convinced myself that it is a faster means to an end and have been sucking it up for the last nine months.

I plan on returning to a 5 day work week by the end of this year. In the mean time I will continue to forge ahead saving 80% of my income. Sometimes I feel like George Bailey from It’s a Wonderful Life. My dreams are to see the world, yet I am stuck in my hometown waiting for a successor that never seems to arrive. In three short years, I will start living my dreams and not my employer’s.

Best of luck!
MDP

Reply

8 FI FighterNo Gravatar May 16, 2014 at 4:10 pm

MDP,

Wow, that’s awesome! Congrats on the salary bump… Working six days isn’t anyone’s idea of ideal, but you have a winning mentality… Short term sacrifice for long term reward.

80% is an outstanding savings rate… It takes a lot of discipline to hit that, even if you do earn a large salary.

All the best in getting out of the rat race in 3 years.

You’re doing great!

Reply

9 MrsFinancialFreedomNo Gravatar May 16, 2014 at 7:50 am

A few years ago, I did my own tapering by going part time at my job.

Went from 40 hours to 24 hours a week and even though I took a pay cut and I am no where near FI yet, it was the best decision EVER!

Not only do I have more free time but I actually enjoy my job much more now so have no great desire to throw in the towel just yet.

Reply

10 FI FighterNo Gravatar May 16, 2014 at 4:12 pm

MrsFinancialFreedom,

Wow, that’s awesome! Glad its worked out so well for you… I can only imagine how much better life would be if I could scale back from 40+ hours to 24 hours… I may very well have to do that soon…

Yeah, I’ve also been thinking that work itself wouldn’t be near as bad with a lot more time off… It’s the free time and freedom that I yearn for the most.

All the best!

Reply

11 ArseneNo Gravatar May 16, 2014 at 8:42 am

Hi there,

I was interested to buy a student housing complex, what are your thoughts on it and why haven’t you dabbled in it?

Reply

12 FI FighterNo Gravatar May 16, 2014 at 4:18 pm

Arsene,

Student housing can be very profitable… You’ll always have lots of demand for your units, provided you buy in the right location. So, that’s a nice hedge against vacancy, and you might even be able to defer capex for even longer than normal.

With student housing, the turnover will be a lot higher… maybe every semester/quarter. In general, I think repair costs would tend be higher as well, so I would only go after a deal that projected very high cash flow, or ROI.

For myself, I personally prefer investing in houses out in the suburbs. I like catering to families who want to be rooted for a few years…

Take care!

Reply

13 Dividend MantraNo Gravatar May 16, 2014 at 9:17 am

FI Fighter,

Thanks for the mention!

And I wish I could lie to you and tell you that not going into the office has a bevy of drawbacks, but it really doesn’t. Of course, it’s only been a few days thus far, but so far I’m in love! The freedom is extremely liberating and energizing. I plan on updating everyone here pretty soon.

Best of luck on the tapering. I’m a bit more emotional and aggressive, so I just couldn’t do it anymore once I became burned out. I wish you luck with your more intelligent strategy. :)

Best wishes!

Reply

14 FI FighterNo Gravatar May 16, 2014 at 4:21 pm

DM,

Haha, I’m so glad you are having a blast with your early “retirement”!

You’re inspiring a lot of us… and I have no doubts you’ll be extremely successful with the writing… although I will admit that I am somewhat insanely jealous of your newfound freedom! ;)

I hear you on pulling the plug… On many days, I am tempted to just go ahead and do the same… I’m getting too anxious, which is why I think the gradual tapering path might be the way to go… We’ll see how that works out…

All the best!

Reply

15 MartinNo Gravatar May 16, 2014 at 12:06 pm

It is a nice dream you have in there. I have it similar. I just decided to give it 5 or 6 more years and then i will start scaling down my hours too.

I have around $300k limit to reach to be able to retire comfortably. With my current savings rate and investments results of 45% annually in average I should get there in 5 years, then 1 year of making money for the first retirement year and I will move myself to a part time employee or quit completely.

Reply

16 FI FighterNo Gravatar May 16, 2014 at 4:30 pm

Martin,

Thanks for sharing! 5 years isn’t really that much time, and it’ll be here before you know it.

You seem to have a good handle on things, and I’m sure you’ll reach your goals.

All the best!

Reply

17 JasonNo Gravatar May 16, 2014 at 3:25 pm

I never did think about tapering really. Thankfully, the job that I’m doing is actually tapering a little bit, since we now have more people working there.

But, even without that, I’m a very “binary” personality; everything is either full-on or full-off. Tapering doesn’t seem natural to me.

When the end of my full-time comes nearer, my plan is to do a “dry run”, where I just live off of my passive income for one year. If everything is ok, then, firstly, I am ready to retire AND I also have a year of saved salary in the bank. Depending on my feeling about it, though, this last year may have some tapering, even if it is unconsciously.

Reply

18 FI FighterNo Gravatar May 16, 2014 at 4:43 pm

Jason,

As an engineer, I can totally relate to the binary way of thinking… With most problems at work, the fix either works, or doesn’t work… No middle ground.

I guess b/c I’m so used to operating in that frame of mind, I try especially hard to break out of that when I’m doing other things… I’m not so sure tapering is the best solution, but in a way, it’s a lot like the “dry run” you speak of… It will give me a good datapoint on whether or not early FI is possible or not at that particular moment in time.

I like your strategy and am excited for you… Early FI is just around the corner my friend! :)

Take care!

Reply

19 Jason @ Islands of InvestingNo Gravatar May 17, 2014 at 4:45 am

Hey FI Fighter, I really love this idea. I’ve been grappling with this myself a little lately – whether to slow the financial independence train down to take back a little more personal time. I’m actually looking into changing roles, which might reinvigorate me to stay on track, but I often get impatient and just want to start experiencing a small taste of early retirement NOW!

I think if you’re going to achieve financial independence with reasonable certainty, in a relatively short time frame (which it looks like you are), then a little taper sounds like an awesome idea, to tip the balance in your life right now towards a little more excitement and enthusiasm.

Reply

20 FI FighterNo Gravatar May 19, 2014 at 9:50 am

Jason,

I hear you about getting impatient… slow and steady wins the race, but on many occasions, I just want to try and sprint through to the finish line… even though I know I probably wouldn’t make it.

So, changing roles, getting revitalized, or picking up that second wind might help make it happen more easily. I’m going to start tapering pretty soon I imagine…

All the best!

Reply

21 Dave @ The New York BudgetNo Gravatar May 17, 2014 at 9:14 am

Man, I wish I could taper like that at my job. For me, it’s pretty much all or nothing. I don’t think they would let me work 4 days a week. So in the meantime, I plan to take every single one of my vacation days and be ready to hang it up in about 3-5 years.

It’s funny because when I first started this journey, 3-5 years seemed SO quick – I wasn’t used to the idea of retiring in my 30s. But the more I travel down this path, the further away that seems. I want to do as much as I can to speed that time frame up!

Reply

22 FI FighterNo Gravatar May 19, 2014 at 9:52 am

Dave,

Yeah, unfortunately, tapering isn’t something that’s possible for every job out there. I’m just trying to get to the point where even if I try and ask for it and get rejected, it wouldn’t be so bad. In other words, if they say “no”, I have the option of just walking away altogether.

Haha, that’s what happens when you take the red pill and start going down this path! I kept pulling in my own early FI date… from 37.5 to 30 :)

You’ll get there soon my friend!

Reply

23 A Frugal Family's JourneyNo Gravatar May 17, 2014 at 1:57 pm

Definitely taper back your hours if you could. I have always said that prior to leaving my day job, I will be tapering as well.

I currently work a 9-80 schedule so I’m already off every other Friday. My plan is to eventually use my vacation build up (currently 160 hours) to take the Friday I would normally work off. Since I work an 8 hour day on these Fridays, I’ve calculated it would cost me a total of 208 vacation hours to affectively go down to a 4-day work week during my last year. We also get about 12 paid holidays a year so I would be working even lesson those particular weeks.

Reply

24 FI FighterNo Gravatar May 19, 2014 at 9:54 am

AFFJ,

Yeah, I’m going to give it a shot and ask for it in the near future. I just need to get to the place where I’m no afraid of hearing “no” and making things awkward at work :)

Wow, 160 hours that’s amazing! I’m usually at 0 or very close to it… I use too many vacation days…

Sounds awesome and I hope you get down to 4 days for that last year. That would make it go by and be a lot less stressful.

Take care!

Reply

25 JasonNo Gravatar May 18, 2014 at 3:57 am

Isn’t ditching the cubical the new american dream? :)

Working my way there but cautious with my investments. Everyone expect the Fed taper to raise interest rates but with 10 year treasury still refusing to pick up. Maybe it will as we get closer to end of tapering.

Reply

26 FI FighterNo Gravatar May 19, 2014 at 9:55 am

Jason,

For sure! I know ditching the cube is my American Dream! :)

Yes, it will be interesting to see how things play out… By this time next year, we should have much better clarity. I’m worried about interest rates rising myself, so am working hard to lock in as many low interest mortgages as I can.

Cheers!

Reply

27 SovNo Gravatar May 19, 2014 at 5:41 am

As they say, no one ever gets to their death bed and utters the final remarks “I wish I worked harder”.

From my point of view money is just an ‘enabler’ to freedom and enjoyment.

You only live once – find a way to be free by either tapering your spending or increasing your income – or both. But your income streams should come from something you really enjoy.

Confucius once said “Choose a job you love, and you will never have to work a day in your life.”

I’ve worked out my Dream – retire with £4m! I’ve set my 10 steps to financial freedom and will follow these religiously. I’m still a long way off (£1.6m) but I’m not going to bust a gut getting there.

If/when I get my £4m though – I’ll invite you all round for champagne!

Onwards and upwards.
Sov
http://www.break50.com

Reply

28 FI FighterNo Gravatar May 19, 2014 at 9:58 am

Sov,

For sure, life is too short! Less work and more play, I agree!

No matter how much I love a job, I think it’s important to have the right balance in life. Unfortunately, when you work for a corporate (even if you LOVE the work), the hours are mostly insane, and you dedicate way too much of your time/energy to it.

Man, you are killing it! Looks like you could retire right now?

All the best!

Reply

29 SovNo Gravatar May 19, 2014 at 10:23 am

“retire right now” – you gotta be kidding – I’d have to lose my wife & two teenagers! Now there’s an idea :-)

£1.6m sounds a lot but living here near London costs an arm and a leg – I spend £4k a month on bills before I’ve even get out of bed!

But wait, with the dollar crashing – I could just move over the pond!

Stay lucky,
Sov
http://www.break50.com

Reply

30 SovNo Gravatar May 19, 2014 at 10:24 am

“retire right now” – you gotta be kidding – I’d have to lose my wife & two teenagers! Now there’s an idea :-)

£1.6m sounds a lot but living here near London costs an arm and a leg – I spend £4k a month on bills before I even get out of bed!

But wait, with the dollar crashing – I could just move over the pond!

Stay lucky,
Sov
http://www.break50.com

Reply

31 Zee @ Work To Not WorkNo Gravatar May 20, 2014 at 12:13 pm

I’ll probably start to taper off when I get to about 30k passive income… Ideally I would stop at 40k just for a buffer, but I know I can live off 30k currently. (it may change in the future. I may have a family, different home, etc.)

But I think 30k passive is pretty good, I’ll have a significant nest egg by then so it won’t be critical to keep at it much longer. I’ll probably start just by doing what is required of me. By that time I won’t be looking for pay raises or promotions because I’ll be in my last year or two at most.

Maybe if I start slacking hard enough I can just get laid off and enjoy that unemployment that I’ve been paying into for years while I start early FI.

Reply

Leave a Comment

{ 1 trackback }

Previous post:

Next post:

Copyright © 2012 FI Fighter