I've looked around MMM for this question, but haven't seen the exact topic. Apologies if I missed it somewhere.
My husband is retired military, so he receives retirement pay. He has a new job and I work. Our biggest obstacle to FI is the house mortgage (quite a doozy in DC area but at a crazy low rate). We're lucky and doing pretty well. Lots of work to do on other expenses, but we're tackling them one by one. Here's the question: I understand the annual expenses x 25 rule for calculating our FI number. But what is the best way to add in the mortgage payment and the retirement in the calculation?
For simplicity, let's say the mortgage/taxes/interest are just about equal to my husband's retirement income. Where I get confused is does the 25x calculation still hold? For us, the 4% withdrawal rate assumption gets skewed because we will--in theory--always have income from the retirement. Or do we do some sort of math jiggle to account for that the mortgage will be gone in 20 years (we aren't paying it off early because the rate is below 3%) but the retirement will continue indefinitely? I know it's a stupid question to the experts here, but I keep getting stuck trying to figure it out. Any help would be appreciated.
Update 1: 8/25/13
Reporting back as promised after doing the FIREcalc and trying out few other tools including from kablamo and davisgang90
The good news: we can be FI in 5 years (according to FIREcalc) with a score of 100%. We were surprised and feel good, even though we have a LOT of work to do on the budget. A few things make our situation work: low healthcare costs because we have military TRICARE coverage. I actually get paid $40 per month by my employer because I don't take the health coverage through work. His military retirement is obviously a HUGE positive factor.
We did NOT include social security in the calculation because we wanted to be super conservative.
So, we are NOT going to be one of the MMM miracle stories because we have made lots of spending mistakes along the way. On the other hand, we've had amazing travel experiences. I have to thank my husband who put us on this track by automating our savings 20 years ago (dollar cost averaging is your friend). Even including the fact that we lost a horrific portion of our investments in the stock market downturn, we are feeling like there is light at the end of the tunnel.
Some basic stats:
Current stache: $313,000 in a mix of retirement 401k, index funds, IRAs, etc. Some of this we can't access until 59 and 1/2 (I am 45 and he is 49), so I may have questions in other threads about where to put future stache-ings.
Mortgage is $2,880 x 12 = $34,560 at 2.875% (30 year fixed, thank you NFCU!), just refinanced this year, not paying it off early
Husband's military retirement: $4,000 x 12 = $48,000 (inflation indexed)
All hangs on an assumption that we will increase the stache by about $70,000 per year x 5 more working years. This is totally doable without major heartache. Why didn't we do it earlier? Because we are idiots.
Current annual expenses without mortgage: $37,200. We are starting to rip that shit apart. All the usual suspects are on the table.
Dropped cable TV, keeping internet
Coming up: cell phones to Republic or other VoIP (we find the tech guide and all the choices more than confusing, but we get the general idea)
Food: We've cut down eating out drastically (I actually love to cook and am good at it). No buying lunches. Eating down the pantry, etc.
I am not ready to be punched in the face, so maybe you can just spank me:
Current HUGE expense that is beyond shameful for me to admit here, but...dog care...$935 per month. No, not for food and toys and vaccinations, that's separate. This is doggie daycare: We have two dogs who would destroy the house if we left them alone all day long. They run around all day in a supervised place with really good people. [Blah blah rationalize, rationalize.]
Even though my job is absolutely 90% emails and online stuff, my current employer only allows me 1 day per week working at home. I've asked to do 3 days at home, but no go. As an experiment, I'm about to do some on-the-side freelance work for a telecommute-only firm. It will never be full-time with that particular company, but it could be a nice supplement to our income and I'm trying to cobble together all freelance, all telecommute work to get the dog care down to zero. I'm also going to ask again at work, with more pleading. Go ahead, let the spanking begin.
Update 2, 10/25/13:
An update because I think something interesting happened. In sum, this is a story of how obstacles and problems can lead to fresh thinking and new solutions.
One huge expense we had (see thread above) was doggie day care. We were sending 2 dogs 5 days per week for $55 per day (discount on second dog). Although it was clearly insane and anti-Mustachian, we were not sure how to reduce this as we both work full time, we are not comfortable leaving the dogs at home for 8 or 9 hours at a stretch (for various reasons), and I had already asked my boss to work at home 3 days per week (no go).
Then one of the dogs starting having issues at daycare (minor squabbles escalating into a final big fight, the other dog got hurt, and we had to pay the vet bill). Although the day care did not categorically kick her out, they were pretty much on the verge. This was incredibly stressful and caused us to step back and reevaluate the entire dog care situation.
My husband and I brainstormed what might be a good solution and then I went to my boss with a plan that addressed his concerns about my working at home (not being in the office for face-to-face meetings): I would work at home in the mornings and come in the afternoons 5 days per week. He went for it!
Now the dogs are at home with me in the mornings 3 days per week, with a dog walker in the afternoon to bridge the 4 to 5 hours. I send the dogs to daycare 2 days per week because they really love it and it provides social training. The staff are really working with us with the trouble-maker, giving her "timeouts." Ironically, she is behaving much better. Our theory is she was getting overwhelmed 5 days per week with no downtime.
Savings: $4,900 per year! And I'm happier with my work situation! And the dogs seem happier! [Punches self in face]
The lesson for me (and why I am updating) is it took a big stressor to make us step back and take a fresh look at how we do things. We are trying to do that with lots of other issues/habits now. Even brainstorming "crazy" ideas like selling the house and moving. Even if we don't act on the ideas, it's a great exercise.