27, wanting to retire in 40s

[LiseF]

Hi all

My name's Lise: I'm 27, married, and I live in central Massachusetts. Ever since I've been in the working world, I realized that there was no way I could ever find one job that would keep up with my changing interests. My ultimate goal is the financial freedom to walk away from paid employment and just pursue my interests, wherever they take me.

Ideally, I would like to retire in my early-to-mid 40s. My husband, however, likes his work and intends to work until standard retirement age; plus, he just became vested in his pension. We do not want to have children. This does make the whole situation a lot easier for me, although I do wonder if that will cause tension in our marriage if I retire earlier than my husband.

Paying off the mortgage is thus the biggest priority for us in terms of retirement, as once that big chunk of our expenses is gone, it would be very easy for us to live on my husband's income.

Any advice from people who planned to retire young--and succeeded!--would be appreciated.

 

[Enuff2Eat]

welcome, well children is the most expensive expense in ones life. With that said, u're already 10-15 years ahead of the rest of us. Early retirement does not mean sit around and watch tv. it means freedom and happiness.

wish u the best of luck.


enuff

 

[ziggy29]

Have you talked to your husband about this? I'm not sure you have based on what you said, or else he "thinks" he'll be okay but you still wonder if there could be some resentment?

If you live below your means, have a strong income and save aggressively, this seems doable especially if he has a good income and good benefits. Of course, at some point he may start hating his job and want to get out. If that happens after you stopped working, would you be willing to go back to work to help him get out of a job he hates?

We're sort of going through this now. I'm 42, the better half is 39. Right now she's not working, but looking for a decent opportunity for her. (We're fortunate enough that she doesn't have to take just *anything*, and it's worth waiting a few months if it means finding the right fit into something she'll more likely to like.) One of the reasons she wants to find something is because I've been working all this time while she's "explored" her options and went to school, and I know she wants to be able to repay the favor some day. It may not mean I "retire," but I can at least find something more enjoyable and less motivated by pay.

But you have to ask yourself: If he became miserable in his job and badly wanted out after you quit, would you be willing to help him escape it?

 

[jIMOh]

We have a similar situation. I am 35, DW is 34. I want to retire early, she tends to enjoy work. She's also a people person where I am a getRdone guy.

Our plan is this:
1) invest significantly. I have been saving for 11+ years now. We are having kids, so getting money set aside before they come (she is due in June) was a huge step). 16% savings rate last 3-4 years.

2) have 6 months expenses set aside as cash.
2a) We have 3 months set aside now in CDs.
2b) We also started the second tier of this with an investment in a moderate mutual fund.

3) pay down the mortgages once the expenses are set aside. This is a complex issue.
3a) We have a second mortgage which is 30 yr fixed 50k@7.5%, when my truck is paid off, the $700/month payment will pay off the second mortgage in about 5-7 years.
3b) We will then invest the $700/month into the moderate mutual fund mentioned above, as our first mortgage is 30 yr fixed 280k @ 5.75%.
3c) I think the moderate mutual fund will grow faster than than 5.75% after tax, so the plan is to keep the mortgage, but pay it off in retirement from the mutual fund.
3d) I won't retire until the mutual fund has enough to pay balance in full, so as mutual fund grows, it's possible just the yearly gains make the mortgage payments.

 

[retire48in2018]

We're on the way to that plan

We could retire at 42 - but want more cushion.

We really started at 29 (we're both the same age) with 0 net worth and $50k in debt.

We're following the Dave Ramsey overall process - but not every detail, in fact, we're deviating in some way with every step.

Right now, we're saving 31%, and will have mortgage paid off in 2012.

The main reason to wait until 2018 - this is the 4th year after high school for our 2nd & last child - so our 'official' target is after 2nd child finishes college. But we expect to be financially independent 2012.

 

[LiseF]

Have you talked to your husband about this? I'm not sure you have based on what you said, or else he "thinks" he'll be okay but you still wonder if there could be some resentment?

Oh, sorry for the confusion: yes, this is actually a topic we've spoken about a lot. It's more of the "he thinks he'll be okay but I still wonder if there will be resentment" camp. I know that in those first few months after college before I found a job, it was rough for him to come home and have me--having been cooped up inside all day--wanting to go somewhere, when he just wanted to relax.

But you have to ask yourself: If he became miserable in his job and badly wanted out after you quit, would you be willing to help him escape it?

I have to say, if he's gone the extra mile and done that for me, I would gladly do the same for him.

For more clarification, a couple more details about us:

- We make around $100K a year (he makes around $56K; I make around $43K).
- We own a home that's worth about $366K but on which we still owe around $350K. We made the mistake of buying too much, too early, and with no money down, so we are paying something like 40% of our income into two mortgages. The second one has a crappy interest rate (8.9%), and balloons in 15 years, so we are working on paying $500 extra on that every month. We also just put a $6,000 tax refund towards that. If I could go back in time, I would not have bought this house, but... at least we are not looking to move anytime soon.
- We have a small emergency fund ($1,000) in a high interest savings account with EmigrantDirect. I would eventually like to grow this to $15K.
- We have around $20K in student loans.
- We currently have around $18K in our 401k/IRAs. My work does not match my contribution, however, so I have not been eager to put too much in this, especially since I won't be able to depend on these until (hopefully) I've been retired for a while.

My financial goals/priorities are thus:
- Pay off the second mortgage
- Build an emergency fund
- Pay off the first mortgage
- Build equity in taxable accounts (probably low-cost index funds)
... all the while contributing a reasonable amount to my traditional retirement funds.

At the same time, I want to enjoy my life as I live it--it would be a shame if I put all my life energy into preparing the future and didn't live to enjoy it...

 

[LiseF]

jIMoh: Your plan seems similar to mine, except that you have better rates on your mortgages, which makes socking money away in them less reasonable *sigh* I really did buy into all the myths of home ownership.

retire48in2018: It's inspiring to know you started so much "in the hole," so to speak. I sometimes get frantic when it seems like my savings aren't growing fast enough, or we have a setback like car repairs, but you illustrate that it's still possible to get ahead.

 

[jIMOh]

Oh, sorry for the confusion: yes, this is actually a topic we've spoken about a lot. It's more of the "he thinks he'll be okay but I still wonder if there will be resentment" camp. I know that in those first few months after college before I found a job, it was rough for him to come home and have me--having been cooped up inside all day--wanting to go somewhere, when he just wanted to relax.



I have to say, if he's gone the extra mile and done that for me, I would gladly do the same for him.

For more clarification, a couple more details about us:

- We make around $100K a year (he makes around $56K; I make around $43K).
- We own a home that's worth about $366K but on which we still owe around $350K. We made the mistake of buying too much, too early, and with no money down, so we are paying something like 40% of our income into two mortgages. The second one has a crappy interest rate (8.9%), and balloons in 15 years, so we are working on paying $500 extra on that every month. We also just put a $6,000 tax refund towards that. If I could go back in time, I would not have bought this house, but... at least we are not looking to move anytime soon.
- We have a small emergency fund ($1,000) in a high interest savings account with EmigrantDirect. I would eventually like to grow this to $15K.
- We have around $20K in student loans.
- We currently have around $18K in our 401k/IRAs. My work does not match my contribution, however, so I have not been eager to put too much in this, especially since I won't be able to depend on these until (hopefully) I've been retired for a while.

My financial goals/priorities are thus:
- Pay off the second mortgage
- Build an emergency fund
- Pay off the first mortgage
- Build equity in taxable accounts (probably low-cost index funds)
... all the while contributing a reasonable amount to my traditional retirement funds.

At the same time, I want to enjoy my life as I live it--it would be a shame if I put all my life energy into preparing the future and didn't live to enjoy it...

a point- you may want to look at combining both mortgages into one with rates being this low. I saw a rate of 5.25% today for a loan which did not have 20% equity and no PMI from ameriprise financial.

 

[Rambler]

a point- you may want to look at combining both mortgages into one with rates being this low. I saw a rate of 5.25% today for a loan which did not have 20% equity and no PMI from ameriprise financial.

a couple of points:

Yeah you might want to look into that, but are you sure your house is worth 366k? I think appraisers for financial institutions are probably more likely to err on the low side right now, rather than the high side. You may find you owe more than it appraises for....but still worth a look. Good luck.

My other point is that a $1000 emergency fund is pitifully low for a couple making 100k, paying 40% of their income to service a mortgage(s). My advice, get the emergency fund up to 3 months (and eventually 6) of coverage of living expenses before trying to pay down the 2nd mortgage. No joke...in this economy, if one of you lost your job and were out of work for 6 months, your home would be gone...no equity, no home, all those extra payments down the drain. Remember, this real estate market is cold if not frozen, so even if you could sell at the market price you state it may take months. Then also remember that the real estat agent will take 6% of the sale price as commission. You are left with $344k, still $6k in the red, not counting any other closing costs. So do yourself a big favor and beef up your emergency fund!

Good luck Lise!

R

 

[jIMOh]

a couple of points:

Yeah you might want to look into that, but are you sure your house is worth 366k? I think appraisers for financial institutions are probably more likely to err on the low side right now, rather than the high side. You may find you owe more than it appraises for....but still worth a look. Good luck.

My other point is that a $1000 emergency fund is pitifully low for a couple making 100k, paying 40% of their income to service a mortgage(s). My advice, get the emergency fund up to 3 months (and eventually 6) of coverage of living expenses before trying to pay down the 2nd mortgage. No joke...in this economy, if one of you lost your job and were out of work for 6 months, your home would be gone...no equity, no home, all those extra payments down the drain. Remember, this real estate market is cold if not frozen, so even if you could sell at the market price you state it may take months. Then also remember that the real estat agent will take 6% of the sale price as commission. You are left with $344k, still $6k in the red, not counting any other closing costs. So do yourself a big favor and beef up your emergency fund!

Good luck Lise!

R

I would look at what home is worth, my understanding from talking to Real estate people and banking people is the unstable values are in cities, not suburbs.

I would second the comment about cash in the bank before paying down second mortgage.

 

[Milton]

Planning your future is difficult unless you have a good idea of what your income requirements in retirement will be.

Probably the best way to come to a reliable annual figure is for you and your husband to maintain daily records of all expenses for at least six months. Carry pocket diaries or similar with you; logging all payments, large and small, doesn't take long.

Of course, documenting your current spending doesn't translate perfectly into future needs. Some expenses (commuting, office gifts, work clothes, income taxes, etc.) will obviously go down in retirement; but others (pursuing your various "interests") will increase. Still, it's better than nothing, and much more reliable than picking an arbitrary amount, e.g. "we'd like to have annual retirement income of $70,000 in 2008 dollars".

I know that in those first few months after college before I found a job, it was rough for him to come home and have me--having been cooped up inside all day--wanting to go somewhere, when he just wanted to relax.

Well, you have almost 20 years of planning time left, but you should give some thought to what you would actually do in retirement. If you have all those wonderful interests to pursue, I'm not clear why you were "cooped up inside all day" when you weren't working.

P.S. Some additional thoughts …

There are essentially four ways for you to afford an early retirement in twenty years or less.

(1) Inherit a large amount.

I don’t know if that is on the cards or not.

(2) Win the lottery.

Same comment applies.

(3) Simply stop working once the mortgage is paid off, and live off your husband’s earnings.

Your original post strongly suggests that this is your plan. If so, the odds are great that your husband will indeed come to resent you. In any case, you will not have achieved true financial freedom, but will merely be dependent upon your husband.

(4) LBYM, invest your savings, and hope that your investment portfolio will grow to the point where it generates a sizeable income stream.

This is probably the best strategy. However, bear in mind that nothing is guaranteed. Since you are starting with a net worth of only $15,000, you’ll have to invest pretty aggressively if you want to see substantial gains in less than 20 years. That risky strategy might or might not work.

 

[LiseF]

I want to thank everyone for their wonderful, helpful comments. I am starting to think that filling out the emergency fund needs to be top priority at this point in time.

I also wanted to reply to this comment specifically:

Well, you have almost 20 years of planning time left, but you should give some thought to what you would actually do in retirement. If you have all those wonderful interests to pursue, I'm not clear why you were "cooped up inside all day" when you weren't working.

Well, a couple of things:
1) A lot of my interests are indoor interests, such as sewing, costuming, reading, writing, etc. We're kind of geeky like that. I didn't mean to imply that I was sitting around all day, but simply that at the end of the day I wanted a change of pace.
2) You're absolutely right that I need to learn to structure my free time better. That is a skill that I'm working on, even during my employment years.

I definitely do need a clearer image of how much I will need to retire on, which is something I'm working on.