I'm 22 and I want to retire at 45

[thefed]

Long time tuker, first time poster. Be gentle.

So I'm 22, I make a fair living, nothing extravagent. I have a fiance and 5 month old son. She works too. We own our cars, have 14 years left on the mortgage. I have a 401k at work that only matches upt o 1% of my salary. I also have a Vanguard Roth IRA I contribute to. I estimate I will have only 450k at the rate I'm going. I DO, however, plan on increasing my salary yearly by 3-4%, and thus my savings as well. (SS if it's around, would hit around 70 yrs old,but I cant count on that)

I want to retire when I'm 45...23 years from now. My wife can continue to work for all I care, *I* want to be done at 45. I'll probably work a little here and there, or do RE investments to stay busy.

By then, I WILL have at least on 7,000/year income stream from real estate. I am WILLING to take out a reverse mortgage on my home for 20(?) years, and then sell it. I would also sell the rental property then, at age 65, for the 100k it'll be worth.

I can and will live frugally if I can pull it off at 45.. Just a few inexpensive hobbies are all I need.

What do you think I need at a MINIMUM to get there?

 

[wildcat]

tuker

Cool word can I be one too?

First, the money necessary to retire varies greatly and it is really specific to each person. A rough estimate is Intercst's 25x your living expenses. If your wife is still working at that age then that could help out immensely, probably to the point where you could clock out. If you continue to have income from real estate then that could help out too. Just about anything that delays tapping your retirement assets will help. P-T work, etc. whatever. If you both did it @ 45 then I doubt it. Lastly, I would not use SS as part of your planning.

 

[Gone4Good]

A rough estimate is Intercst's 25x your living expenses. 

When using this estimate, keep inflation in mind. If you assume a 3% inflation rate your expenses will double over then next 23 years. So if you're planning on building a nest egg to support a 30K / year lifestyle, the size of the portfolio in year 23 is not $750K (30,000 * 25), but more like $1.5M ($1MM ain't what it used to be).

You may also find that your expenses increase faster than inflation (unless you are very diligent). What seems comfortable at 22 becomes increasingly less so as you get older and can afford more comfort.

 

[maddythebeagle]

What percentage of your income are setting aside and do you have a budget (how much you will need)? Many people on this board have set aside 20-50% of their income. You are at the right age to start planning (earlier the better).

 

[thefed]

Cool word can I be one too?

First, the money necessary to retire varies greatly and it is really specific to each person. A rough estimate is Intercst's 25x your living expenses. If your wife is still working at that age then that could help out immensely, probably to the point where you could clock out. If you continue to have income from real estate then that could help out too. Just about anything that delays tapping your retirement assets will help. P-T work, etc. whatever. If you both did it @ 45 then I doubt it. Lastly, I would not use SS as part of your planning.

Sorry, somehow I got tuker from lurker...but it's gonna stay. I like it.

She will def. be working then, probably nannying or something like that. That's what she does now, and she loves it. It allows her to make money, play with kids, and be lazy. Perfect.

I hope to have 2 houses paid in full by then to use as rental income streams, but I can do one for SURE. and of course, I wont count SS...but it'd be a nice lifestyle bonus if I'm making it without it.
I KNOw I dont have enough $$ as it is now. I figure I'm still a little off base. However, the reverse mortgage and RE stream will help. The reverse mortgage is tax free I think, so that helps.

Also, my 450k will be about 60/40 ROTH/401k...and 50k of it cassh. The tax/penalty is there for the 401k. Hopefully I could slow the pull of principal on the ROTH the first few years, for good measure.

I'm currently setting aside 8% pre tax (401k,including company match), and about 9% post tax money(ROTH). This leaves me enough money to pay my small debts and break about even month-to month (excluding bonus' at work...but they're not consistant).

I WANT to save more, but CANT until I get a raise (Jan probably). I plan to save 50% of every raise I get from here on out, so that should help.

 

[Gone4Good]

Its still not clear if you're talking about real or nominal dollars in your projections but it seems from what you've disclosed that 45 is pretty optimistic.

$450K in savings @ 4% is $18K / year in 2028 dollars or about $9K / year in today's dollars.

$7K / year in real estate income (assumed to be real dollars) - but then you say that you plan to sell the property for $100K (also assumed to be real dollars).  $100 K @ 4% is only an additional $4K per year to live on after having lost $7K / year in rental income - are you sure about your assumptions here?

I'm not sure how the reverse mortgage fits in.  They typically are only available to people much older, no?  But if you were to do this at 45 with a 20 year mortgage, where would you live after your 65th birthday?

Social Security is going to provide even less of a benefit to someone who retires at 45 then some one who works to a "normal" retirement - all the more reason to forget about it.

 

[wildcat]

somehow I got tuker from lurker...but it's gonna stay. I like it

I like it too.  If I were you I would consider the reverse mortgage as a last resort.  It seems to be popular among people who did not adequately plan for retirement and/or those who live in incredibly high real estate areas.  Why do it if you plan according?  Also who knows, banks may do away with reverse mortgages in the future.  Be patient, live life while you are still young and planning, LBYM, read "Four Pillars" by Bernstein, invest wisely (I hope equities make up most if not all of your egg) and you will make it.  I am 27 and I started when I was 22.  Good time to start planning and educating yourself.  

 

[laurence]

What do you do for a living? At the age of 22, are you in your final career already? I thought I found my calling at that age, too (Economics), now at 31, I'm a computer systems security guy. The house you are in now, can you live in it forever (you like it that much)? In a few years, you'll be able to really sock away the money if you are driven and work yourself up the career path. Paid off house is great, rental income is great, savings is great, but dang, you have a lot of time and variables between now and then.

Reverse mortgage has a minimum age to start, I believe it's 62.

 

[Sheryl]

On the reverse mortgage comments: I am pretty sure there is a minium age, as Lawrence said. But I wonder why Wildcat thinks it is a "last resort?"

I have not counted on doing this - since it would be at least 20 years from now, products change, options change, my mind may change about keeping this house forever. So I don't budget it into my FIRE plan. However, having no heirs to care about leaving the house to, It seems like a really interesting option as I reach that age.

Why not use the cash from the house sale for my enjoyment before I die instead of leaving it to some ungrateful long lost nephews or charity? OTOH would this be a better or worse deal than just taking out a new standard mortgage and having all the cash upfront? Pro's and cons anyone?

 

[Gone4Good]

On the reverse mortgage comments: I wonder why Wildcat thinks it is a "last resort?"   

I consider a reverse mortgage to be an option of last resort too - an additional safety net if you will. I think to do otherwise may be cutting it a bit too close. If I find that at the age of 85 I need the cash that is tied up in my house, it will be because my other investments haven't performed as anticipated or my expenses proved greater than I thought. If, on the other hand, my assumptions proved too conservative, I have no problem leaving a sizeable estate to charity. I'd rather live the last decade of my life knowing I have more than enough saved than spend it worrying about whether I can afford my medication this month.

 

[thefed]

Reverse mortgage: yes you need to be 62 (today's laws). I explained incorrectly int he first post. After looking at a spreadsheet I made, I incorporated a RM in at 62, and SOLD the hosue at 77. Using today's rates, and a fuure value of the home, I am able to withdraw 6000/yr for those 15 years, leaving about 25k of the loan left. Then, the difference between the RM LOAN,and the sale price of the home would leave me about 80-100k. (I may be off, Im at work right now and cant see the sheet). I expect I'd by then need to move to a condo,retirement type situation, or in with a child.

MY #'s are real dollars. As in, 6k into savings in 2005, 6k into savings in 2020. 7k/yr actual cashflow in 2020. I plan on selling the house at 65,expecting I'd be fed up with the landlording business. Also anitcipating to recoupethat cashflow with that from a reverse mortgage.Of course, I expect my contibutions 20 yrs down the road to be MORE than today, basically increasing in-step with inflation and my salary.

I am a finance manager for a sub-prime lender right now. I think I'll be in the field for at least 10 more years. I have no college education, and THUS I need to take advantage of the experience this company is giving me. I fully expect to be making at least 40% more gross in 5 years.

Thanks all of you for your input, it's definately appreciated.

 

[laurence]

Well, you are thinking about retirement, you have a goal/timeline, and you are saving towards it. The only peice you need to address immediately IMHO is understanding your asset allocation, what kind of return you want to get, what risk you are willing to take to get that return etc. Have you looked at the expense ratios of your investments? I second the motion to read 4 pillars. You have tons of time to figure out what to do with the rest of your life, but the better invested your money is now, the more options you'll have.

Now that you have a bundle of joy, how's your life insurance look? At your age, a term life policy of $1 million will cost you peanuts, and make sure the two loves of your life are set if you aren't there.

 

[thefed]

Well, you are thinking about retirement, you have a goal/timeline, and you are saving towards it. The only peice you need to address immediately IMHO is understanding your asset allocation, what kind of return you want to get, what risk you are willing to take to get that return etc. Have you looked at the expense ratios of your investments? I second the motion to read 4 pillars. You have tons of time to figure out what to do with the rest of your life, but the better invested your money is now, the more options you'll have.

Now that you have a bundle of joy, how's your life insurance look? At your age, a term life policy of $1 million will cost you peanuts, and make sure the two loves of your life are set if you aren't there.

Im actually looking into LIFE insurance here soon. I aht to do it (maybe I'm supersticious?) but oh well, it's gotta be done.

Also, my figures were assuming a 7% constant gain over the next 23 years (of course there will be ups and downs, but I didnt figure those in...jsut a flat 7% accross the board).

Asset allocation is something I'm pretty new to, and learning/reading every day.

As far as I know, I'm at about 70 stocks, 30% bonds. I have some $$ in a Taget 2045 fund, and a much more complex set-up in my 401k (earned about 20% YTD)

 

[wildcat]

thefed -

I am not going to question your numbers.  You know 'em better than I do.  Just read as much as possible about investments & personal finance and it will serve you well.

FYI - I am about 90% equities and older than you but go with what you are comfortable with.

Sheryl -

My thoughts are similar to Yrs to go.  Last resort in my view if my planning is really off and something bad happens.  A cushion that is there but hopefully not needed.  For example, what if I came across some medical condition in retirement, racked up a lot of bills and realized my investment assets wouldn't cover it.  I would much rather consider it an option at that point in time, a last resort.  Other than that I would much rather live off my retirement/investment assets.

 

[greg]

thefed: I wish you lots of luck on your FIRE journey. Other posters on this board have made comments that the first $100,000 is the hardest to achieve, and I agree with them. I'd like to recommend that you break that goal down into smaller parts, perhaps into increments of $10,000 or $5,000 so that a sense of regular achievement is developed in the early years of savings/planning. Sometimes one distant and large goal actually foils the end result. As you get closer to your final goal, you can switch to larger units.

--Greg

 

[thefed]

thefed: I wish you lots of luck on your FIRE journey. Other posters on this board have made comments that the first $100,000 is the hardest to achieve, and I agree with them. I'd like to recommend that you break that goal down into smaller parts, perhaps into increments of $10,000 or $5,000 so that a sense of regular achievement is developed in the early years of savings/planning. Sometimes one distant and large goal actually foils the end result. As you get closer to your final goal, you can switch to larger units.

--Greg

Great idea! I have short term savings increase goals (every 6 months), btu no 1, 2, 3, 5 10 yr TOTAL goals yet. I will do it though.

Thanks

 

[LEX]

Fed: It can be done. Just make every effort to avoid a pre-mortem estate distribution through divorce. 8)

 

[Nords]

Just make every effort to avoid a pre-mortem estate distribution through divorce. 8)

That's good advice. I'd try to avoid the post-mortem/divorce distribution too.

 

[haha]

Long time tuker, first time poster.  Be gentle.

So I'm 22, I make a fair living, nothing extravagent.  I have a fiance and 5 month old son.  She works too.  We own our cars, have 14 years left on the mortgage.  I have a 401k at work that only matches upt o 1% of my salary.  I also have a Vanguard Roth IRA I contribute to. I estimate I will have only 450k at the rate I'm going. I DO, however, plan on increasing my salary yearly by 3-4%, and thus my savings as well. (SS if it's around, would hit around 70 yrs old,but I cant count on that)

I want to retire when I'm 45...23 years from now.  My wife can continue to work for all I care, *I* want to be done at 45. I'll probably work a little here and there, or do RE investments to stay busy. 

By then, I WILL have at least on 7,000/year income stream from real estate.  I am WILLING to take out a reverse mortgage on my home for 20(?) years, and then sell it. I would also sell the rental property then, at age 65, for the 100k it'll be worth.

I can and will live frugally if I can pull it off at 45..  Just a few inexpensive hobbies are all I need.

What do you think I need at a MINIMUM to get there?

IMO, with this post and the responses to it, this board has officially moved from it's baroque period into the rococco.

I am trying to imagine what response I might have gotten if I presented this idea, at age 22, with a son, to my father, or grandfather, or uncle or former teacher or any other adult that I might have known.

Of course I never would have tried it; their derision would have been too much for me to deal with.

All we need to cap off this "advice" is for our resident Randian to add a bit about credit card arbitrage as a second income.

And BTW, where does a 22 yo learn about reverse mortgages? On day trips to the local senior center?

Go team, go!

Ha

 

[wabmester]

Ignore Ha. He's deep into his curmudgeonhood.

I've prepared a simple-to-follow guide for retiring by age 40 for you here:

10 Steps to Becoming a Wabillionaire

 

[TromboneAl]

Make sure that you understand life insurance.  When you've got lots of future earning potential and little money, you need life insurance.  But as you have less future earning potential (older) and more money you need less life insurance.  And only consider straight term.

 

[Zipper]

Ha, that has to be the funniest, most direct to the point post I've read in months.

Yes, I could see myself talking to my dad, grandparents and uncles, @ age 25.

.........they, all now deceased, wouldn't have been amused! "What the hell are you thinking? Get a life, and look after your family!

Read between the lines and you can see someone not lasting too long in the marriage game. ("The wife can work if she wants after 45, but not me, I'm outta' here.")

 

[thefed]

Ha, that has to be the funniest, most direct to the point post I've read in months.

Yes, I could see myself talking to my dad, grandparents and uncles, @ age 25.

.........they, all now deceased, wouldn't have been amused! "What the hell are you thinking? Get a life, and look after your family!

Read between the lines and you can see someone not lasting too long in the marriage game. ("The wife can work if she wants after 45, but not me, I'm outta' here.")

What about being financially independent would is so terribleto want? What does that have to do with me taking care of my family? I'm not so sure I follow you or HA.

And as far as my marraige not lasting....where do you get that impression? My fiance doesnt NEED to work now, but she does because she wants to. So, she can do whatever she wants when we're 45 as well. I'll retire, and she can work if she wants. Simple as that.

 

[wildcat]

thefed -

Don't worry about it.  I have never heard anyone say "I wish I started planning later."  Planning for your future, being a good hubby/dad and living a good life while you are young can all be done regardless of your age.

 

[uncledrz]

Make sure that you understand life insurance.  When you've got lots of future earning potential and little money, you need life insurance.  But as you have less future earning potential (older) and more money you need less life insurance.  And only consider straight term.

Just one added thought about life insurance is that it is necessary when responsiblities are extensive (read kids and family young) and becomes less so as those responsibilites lessen. One expense that goes to 0 in ER.
Uncledrz