25 & want to retire at 45

[OptimistPrime]

Hi all,

I'm a newbie at Megacorp (started full-time January 2010), and I have this crazy idea in my head that I'd like to retire in ~20 years (at age 45). I've been maxing out a Roth 401k ($16.5k) + Roth IRA ($5k), am managing to push $2.6k/yr into a taxable account, and am currently building up my emergency fund to smooth out any bumps along the way. I haven't yet been able to start saving for some other things I'd like to save for (house, vacations, new car.. -- on hold until I'm happy with my e-fund), but I figure I could do worse than to "over-save" for retirement now and change my mind later.

I have no doubts that my current savings rate combined with my current lifestyle (<$40k/year) will put me in a solid position by age 60 when I can start withdrawing my 401k/IRA, but I'm a bit lost as to how to bridge the 15-year gap between 45 and 60. I know I'm not putting away enough in the taxable account to cover it (but plan to increase that over the next few years), but what is the typical plan for that (not that retiring at 45 is typical, but maybe on this forum!).

Is my best option just to save more in a taxable account in addition to what I'm already doing?

Thanks,
Optimist

 

[SecondCor521]

Keep doing what you're doing and increase your savings rate until it is 50% of your gross. Then you can probably retire at 45. Read up on 72(t) also.

2Cor521

 

[PSUgrad2]

Fantastic start - great job establishing a mentality of saving first. You're well on your way towards an early retirement - just how early, hard to say (for me at least).

For what it's worth - I'm about 10 years ahead of you, and had similar priorities (max 401k, house down payment, roth, then taxable, and pushed most salary increases into savings), and now have mid-six figures in retirement savings. Only major difference from your plan was the year or so we spent saving for our first (starter) house, which delayed the Roth/taxable accounts from starting up by a couple of years.

And 10 years later, still hard to see how early we'd be in the position to pull the trigger. A lot depends on whether we decide to bank on my wife's public employee pension and guaranteed health care (mostly paid by the employer until we hit Medicare age, assuming her benefits hold up to spending pressures), should she work until ~55. With her pension and benefits, I could probably bail at 40. If I was my own, I think 50 might be more realistic. We don't worry about it too much though, we just try and focus on keeping expenses reasonable, keeping saving a priority, and we'll see how things land.

 

[East Texas]

Your mantra should be "I will live below my means...." and stick with it. Save / invest most of your pay raises. Don't buy "stuff".

Congrats! Few people your age have such a vision. I'm sure you'll achieve your goals.

 

[DFA]

Welcome and you look like you have a great start.

" Don't buy "stuff"."

I guess I screwed up the quote.

I totally agree with this statement; I am now trying to figure out how I got all this stuff and how long it will take me to get rid of it for downsizing and possible extended stay in Europe..

 

[LightningDawg]

Just wait til you get married and have kids.
Then, your savings rate gets altered!

 

[OptimistPrime]

My savings rate (gross - taxes) is already over 50%, but I'm trying to focus on raises to boost my savings even more. I'm trying to save as much as I can now so that I'll be ready when life's other expenses come up later (marriage, kids, etc).

I've looked into 72(t) quite a bit, but most of it is targeted at Traditional IRAs. I'm currently maxing out Roth versions to get "more money" into the same contribution limit, but as I understand 72(t), it only applies to the 10% early-withdrawal penalty, and I'd still take the "regular taxation" hit for withdrawing earnings from a Roth IRA before 59.5. That would be a huge penalty (double-taxation). I understand I can withdraw contributions to a Roth IRA penalty-free (after 5 years, etc), but I don't see that as sufficient to cover a 15-year gap.

There still isn't a whole lot of information on retiring early with Roth 401k/Roth IRAs. I suppose if all of my Roth 401k contributions for 20 years can also be withdrawn penalty-free after being rolled into a Roth IRA, I'd be much closer to bridging that gap.

Thanks for the feedback so far.

 

[mexico]

You will have to build up that taxable account to get you from 45 to 60 at some point. However, I would keep doing what you are doing and establish a large 401k and IRA and then start picking up the pace with the taxable account( non retirement fund). I am 46 and planning on quitting next yr. With my spending plans,about 40-45k/yr, 500k in the taxable Vanguard account will get me to 60 and at that point, there will be a considerable amount in IRA/401K funds.
At your savings rate and level of focus, you will have quite a bit by 45 and definitely doable. Congrats.

 

[pimpmyretirement]

Spend enough now that you get to enjoy your youth. No amount of money buys it back.

Kids, a spendthrift spouse, and health care are the biggest risks to your success.

 

[East Texas]

One of my favorite Scott Burns articles is Five important steps before retiring.

• Eliminate debt. The greater your debt, the more income you'll need in retirement. Debt may be easy to handle when you are working, simply because you are working. But it will be a lot more difficult in retirement -- because you won't be working.
• Know what you're spending. Even at age 62 or 65, millions of people are clueless about how much they spend or where they spend it. At one time this could be excused. Most of us don't want to be bookkeepers in our spare time. But today, with programs like Quicken and Money, none of us have any excuse for not knowing where our money is going.
• Put your possessions in good condition. The best way to keep your expenses stable -- at least for a few years -- is to retire with everything in good condition. That means recent model cars, recent home appliances, and a house that won't need a new roof next year. Then you won't have any major expenses -- the kind that blow budgets -- for several years.
• Do the same with yourself. Our bodies are our most valuable possession. Without them, we aren't. Taking walks, doing moderate exercise and losing weight can help stave off problems from circulatory disease. It can reduce the need for knee replacements and other indignities. I'm not saying that paying attention will ward off heart disease or cancer for everyone, but we can do a whole lot better.
• Make sure your income exceeds your outgo. The best financial advice ever written did not come from an economist, an investment adviser or a personal finance columnist. It came from a novelist. In "David Copperfield," a Charles Dickens character named Wilkins Micawber provides us with a fundamental equation for happiness:"Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

 

[OptimistPrime]

5 year update

I'm a newbie at Megacorp (started full-time January 2010), and I have this crazy idea that I'd like to retire in ~20 years (at age 45). I've been maxing out a Roth 401k ($16.5k) + Roth IRA ($5k), am managing to push $2.6k/yr into a taxable account, and am currently building up my emergency fund to smooth out any bumps along the way. I haven't yet been able to start saving for some other things I'd like to save for (house, vacations, new car.. -- on hold until I'm happy with my e-fund), but I figure I could do worse than to "over-save" for retirement now and change my mind later.

Changes in the last 4-5 years (now 25% through my "20 year plan"!):
- Almost $250k saved for retirement (across 401k/Roth 401k, Roth IRA, Taxable)
- Bought a house at the bottom of the market. Selling it later this year in a Megacorp-sponsored relocation to Colorado.
- Taxable savings had been stalled for AZ house downpayment + continues to be stalled for potential CO house downpayment.
- Switched from Roth 401k to Traditional 401k as my tax bracket increased, but still maxing out 401k + Roth IRA.
- Kept annual spending around $30k, still targeting $40k/year in retirement.

I feel like I'm on track, but I now see it as a potential +/- 5 year window. I see the worst case as 50, and a potential best case at 40 if things go well.

My biggest unknown right now is deciding whether to rent or buy in Colorado. Relative to AZ, house prices & rents are roughly double. The big question is always "how long will you stay," but I've proven I suck at answering that question accurately. I feel that buying a $300-400k house could put me in a good position in 5-10 years, but I also wouldn't mind just dumping that down payment into my taxable retirement account instead.

Oh well, I'll just figure it out as I go. I've always been a better lurker than poster, see you in 2020! (And I sincerely appreciate all the advice I've seen on the site from the regular posters, thanks, all!)

 

[NW-Bound]

$250K savings built up in less than 4 years since your intro post. Impressive!

ER at 45 certainly is not out of reach for you. Cheers!

 

[Greencheese]

Very encouraging read for those of us who are just a few years younger than you!

 

[daylatedollarshort]

Good work on the savings. Another option to consider is at some future point instead of retiring completely is to downshift in the pre-59.5 years to something you love doing but still brings in an income.

 

[wingfooted]

I would predict that the Colorado area will remain a desirable location for at least the next two decades and the value of a real estate investment (single family residence) would at least keep up with inflation.


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[Senator]

I am leaving the rat race at 56, and I will have a few years to support myself, and probably my DGF.

The USA economy, and life in general, is geared towards retiring at ~65. At 25 you get married and have kids, at 45, you put them through college, at ~50, you save like a madman so you can retire on more than just SS.

You need to develop alternative income streams to help you out when you retire at 45, and to increase savings now. Rental property is decent. Dividend income, side businesses, military pension at 20 years, side gigs (walking dogs, web development, phone app development, selling pencils on the corner, etc.) are all examples of things you can do. There are 1000's of others. If you start something, keep the risk small.

Skip the temptation to go for the marriage/kids route. That will make life exponentially more difficult.

Keep the Booglehead mindset. Invest in S&P index funds, and forget it. No matter how tempted you are to buy the big names.

Remember, here in the USA, anyone can become a millionaire if they have enough drive, ambition and determination. You will have an easier time than the ones here that have already made it. We all started 20+ years ago, when incomes were much smaller.

 

[Fishingmn]

Skip the temptation to go for the marriage/kids route. That will make life exponentially more difficult.

Difficult & expensive - yes. That said, my life has been made 1000% better with a great wife/best friend and the experiences of raising kids.

To each their own I guess.

 

[scrabbler1]

I retired at 45 six years ago and the biggest reason I was able to do that was being childfree. I knew from age 20 I never wanted kids but it wasn't until I was 35 that I could parlay that terrific decision into an early retirement. If you really want to retire at 45 like I did, skip the kids. Otherwise, expect to retire later. Your choice.


I also realized as I was putting together my ER plan that I needed a lot more in my taxable accounts than I did in my tax-advantaged accounts. In the years leading up to my ER back in 2008, I had about 1/3 in taxable, 1/3 in company stock (in tax-advantaged) and 1/3 in my 401k. When I ERed, I cashed out the company stock at favorable tax rates (using NUA) so I began ER with 2/3 in taxable and 1/3 in tax-advantaged. The (Rollover) IRA continues to grow nicely, doubling since I ERed and acts as one of my "reinforcements" along with my frozen company pension and SS when I near and enter my 60s less than 10 years from now.

 

[papadad111]

25 &amp; want to retire at 45

The downside to no kids and not married could be a very bleak and lonely existence late in life. Especially true for females as life expectancy is longer.

My mom is in assisted living. It sucks for many of the old ladies living their ... Still with tread on their tires and financially just fine ... but no one to help them out. No one to come visit.. And no one to care for them when the final chapters are imminent. A Lonely existence .... you can call it existence....

There are certainly trade offs.

To be sure .. One can still retire at 45 while having kids and raising family.

The key is to start young ensure good compensation and save save save early. Find a like minded spouse. LBYM... Yada yada

 

[scrabbler1]

The downside to no kids and not married could be a very bleak and lonely existence late in life. Especially true for females as life expectancy is longer.

My mom is in assisted living. It sucks for many of the old ladies living their ... Still with tread on their tires and financially just fine ... but no one to help them out. No one to come visit.. And no one to care for them when the final chapters are imminent. A Lonely existence .... you can call it existence....

There are certainly trade offs.

To be sure .. One can still retire at 45 while having kids and raising family.

The key is to start young ensure good compensation and save save save early. Find a like minded spouse. LBYM... Yada yada

No guarantee that having kids will prevent loneliness in old age. The nursing homes are full of elderly people whose kids never visit them.

Surely one can retire at 45 with kids and a family........but it is surely a heckuva lot easier to retire at 45 without kids (being married can help or hurt one's chances of retiring early). Kids are a big drain on one's finances unless they are generating more income than expenses. I know I'd have had a ZERO chance of retiring at 45 if I had kids.

Being childfree and retired at 45 has given total freedom - financial and personal. I come and go as I please and money magically appears in my bank account every month without having to do anything. What a great combination!

 

[Bestwifeever]

Thanks for the update, OptimistPrime. Nice progress.

Keep us posted about the Colorado move.

 

[papadad111]

No guarantee that having kids will prevent loneliness in old age. The nursing homes are full of elderly people whose kids never visit them.

Surely one can retire at 45 with kids and a family........but it is surely a heckuva lot easier to retire at 45 without kids (being married can help or hurt one's chances of retiring early). Kids are a big drain on one's finances unless they are generating more income than expenses. I know I'd have had a ZERO chance of retiring at 45 if I had kids.

Being childfree and retired at 45 has given total freedom - financial and personal. I come and go as I please and money magically appears in my bank account every month without having to do anything. What a great combination!

Scrabbler. Good points. Not a right or wrong answer so won't try to convince others -- rather, let me share my perspective.

my sisters who are either not married or married but no kids are in their 40's too and were recently discussing old age care as mom enters this phase of life.

Both agreed not having kids means there is certainty that no kids will ever visit them in old age,. Their bigger concern was the growing need in us healthcare to advocate for their medical care when hospitalized.

They debated whether to make a "pact" to look out for each other later in life - they live across country now but perhaps could live next door late in life. That makes a lot of sense - barring kids and perhaps a spouse preceding them .. siblings can look out for each other. Both felt this far better than a healthcare advocate/paid stranger who may not really have their interests in mind.

We then discussed my cost of kids and that while they agree kids are probably expensive, neither had kids of their own so didn't really know for sure.

We discussed that kids actually matured me and motivated me to work and save harder at a younger age than maybe I would have without kids ...the "more mouths to feed" theory... To be sure Both my sibs are industrious.. But admitted the pressure to provide for offspring is a likely motivator increasing the income side to offset the expense side... an interesting point in his I got to where we are financially.

We also discussed co-habitation later on in life with kids as is done in many countries - kids don't generate income when young ... but can and often do help reduce expenses ( elder care, transportation, even housing). Kids do grow up and become independent ... Most often. In the olden agriculture days, they were free farm hands .. Not sure the ROI is as positive today but kids are not forever a cash drain.

PS. The freedom you describe is typically very similar to those with kids once the kids hit about 18 years old ... Usually around one's mid 40s depending when family was started!

Best of all my boys can let our dog out when we are traveling / vacation !

And at 45 I can't wait for grand kids some day as strange as that sounds at my relative young age.

Kids are not for everyone and definitely good for you to retire at 45 and not have to worry about raising or launching kids !! Enjoy the time!! You've earned it !!

 

[mdsmith1]

No amount of money or early retirement would ever replace the joy of raising my children. Can't imagine life without them.


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[scrabbler1]

No amount of money could ever compensate me for the misery of adding kids to my life, even if I could retain my early retirement. Can't imagine life with them.

 

[EastWest Gal]

There will always be a rift between the kids/no kids group. The "no kids" group cannot imagine the meaning and the emotion and the generativity that the "kids" group experience. But the "kids" group experienced a "no kids" life, before kids.

However, this thread is being hijacked by this. Congratulations to the OP for the huge steps you've taken.

I think renting is useful if you think you are going to be there a short while. Otherwise there are benefits and downsides to home ownership. Hard to decide.


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