Author Topic: I'm doing everything right yet early retirement just doesn't seem possible.  (Read 9696 times)

fizzgig

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Hi,

I save between 50-60% of my income (I only make 52k in NJ). I just put most of my savings into a Vanguard Index Fund this year in hopes to make some money in the long run. I live 1.5 miles from my job. I drive a 15 year old car. No debt ever in my life. For the 4% rule to work I will have to save about 625K (25 x your annual expenses. 25K in my case). I only have about 125K so far, I'm 39, I can't scale back my living expenses anymore. Even if I found a way, at most it would be 1-2k a year tops, not a big difference in the grand scheme. It seems highly unlikely I'll ever get even close to 625K before actual retirement age, if ever. Is early retirement strictly a game for a young person with above average salary? I didn't start until my early 30s, but even if I started 10 years earlier, an early retirement wouldn't have been possible.

Middlesbrough

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Eventually the time value of money will kick in and your growth will come mostly from investment and not your personal saving. Math says this will become noticeable around 10-15 x annual expenses.

frugaldrummer

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http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
At your savings rate, you should be able to retire in 12-17 years, depending on whether your savings rate is 50% or 60%.
Subtract  4 or 5 years for the savings you already have, that puts FIRE about 8-12 years away!

justajane

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+1 to what Middlesbrough said. Compound interest and the snowball effect will be your friend. You will be pleasantly surprised where you end up.

Here's a simple Vanguard article that you might have already read that outlines the process: https://personal.vanguard.com/us/insights/saving-investing/power-of-compounding

You're doing incredibly well in light of your income and when you started. You might not be able to retire when you're 45, but maybe in your fifties.

Chrissy

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You're doing everything right now, but you say you JUST put your money in an investment account.  So, you weren't doing everything before.  Investment is the key to retirement success. 

Good job keeping your eyes and mind open.  Keep going, and you will get there.

Cathy

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You will be able to retire at 54 if we assume the following:
  • 5% real investment return (actually fairly conservative),
  • 0.5% inflation (realistic based on the current environment),
  • 1% raise each year,
  • your expenses start at $25,000 and inflate by the rate of inflation each year,
  • inclusive of FICA, your total tax rate on wages is 20% (hopefully it is lower!), and
  • you do not pay taxes on investment returns either because they are in tax-sheltered accounts or because they come in the form primarily of capital appreciation which you will not realise until retirement.

Here is the table (with all amounts in nominal dollars like you would see in your bank account statement):

AgeGross wageNet wageSpendingSavingReturnsAssetsTargetRetired?
39125000
40520004160025000166006906148506625000No
41525204201625125168918205173602628125No
42530454243625251171869592200379631266No
435357642861253771748411071228934634422No
445411143289255041778512649259368637594No
455465343722256311809114330291789640782No
465519944159257591840016121326310643986No
475575144601258881871318029363051647206No
485630945047260181902920059402139650442No
495687245497261481935022218443706653694No
505744045952262791967424515487895656963No
515801546412264102000226956534853660247No
525859546876265422033429551584738663549No
535918147345266752067032307637714666866No
545977347818268082101035234693958670201Yes

In real life, it's important to understand that investment returns may be a wash over the relatively short time period to your retirement (and are not guaranteed to shorten the time to reaching your retirement target), but it's still important to purchase investments because you will certainly need them for the retirement itself.

Most of society would still consider 54 to be early retirement. If you want to get there even faster, the easiest way would be to earn more money.
« Last Edit: April 11, 2015, 10:01:58 AM by Cathy »

forummm

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You're totally on the right path here. Keep it up and you'll be golden. You started later than some of us, so you'll finish later. But you're well on your way to being retired a decade or more before most people.

little_owl

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Don't get discouraged, as others have said, continuing to save is so important.

The other side of the coin can't be ignored...is there a side gig or weekend hobby that could earn you some more income?  Can you ask for a raise?

More money coming in also certainly helps - this forum is great for brainstorming those ideas.

frugaldrummer

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Ways to speed things up:

_ acquire new job skills and get a promotion or a better paying job

_ start a side hustle that brings in extra money you can throw towards retirement.

_ buy an inexpensive rental property somewhere that you might want to retire to, and let the rent build equity for you (this only works if the math is right, but a paid off property in retirement lowers your retirement costs).

_ don't forget that none of our calculations include social security, which will likely provide extra buffer for you in retirement.

mohawkbrah

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25k expenses seem pretty high (assuming you're single) ever thought of moving and finding a better job somewhere cheaper? food for thought

humblefi

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Many good tips already on this thread. I will add a couple small thoughts.

1.
>>>>> I just put most of my savings into a Vanguard Index Fund this year
If you put money in the recent past, you are buying at some of the highest stock prices in the last 5 years i.e. you invested in a boom cycle. I do too. Nothing we can do about that. But, it is great that you took the first step. Now, wait for a bust cycle and invest the same if not more and you will see your returns compound big time. IMO, we all need at least one boom and bust cycle to see *chunky* gains in the portfolio. So, stay the course...things will turn around.

2.
Some of the biggest problems in life come from peer pressure. So, is it possible that you are putting undue pressure on yourself?
You are doing quite well because you are aware of Financial Independence now and you know what your life goals are.
Let nobody else affect your path to FI...just put the blinders on and aim for $625K.
Take a peek at this if you have time: http://humblefi.com/2015/02/20/money-stress-how-i-am-trying-to-manage-it/comment-page-1/

3.
When I started, I chose the path of generating passive income streams. I went through the same feeling as you since the income I was getting was a very small amount every month. I gave up putting money for a month and then realized that if I do not do it, nobody will :-) So, I took some downpayment money and put them into the chosen mutual funds. Then the money I get every month became bigger and now I really really get motivated every time I see that money coming into my account every month. It may be purely psychological to see more money coming into my account than before, but hey, whatever keeps me fighting, I will take it.

Hope that helps.

Exflyboy

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Yeah I just took your existing $125k and at 8% compound over 26 years equals $924k.. And thats with added precisely NOTHING to your existing stash, which of course is NOT what you will be doing.

So, the thing is.. there will be a recession at some point..in 2008 this was a 50% correction... But look at it now.. so whatever you do don't panic when the market tanks.. just keep buying.. despite what all the media and you family says.

If you want more encouragement my blog (link below) shows how fast I became FI .. i.e $160 in debt to FI in about 17 years.. yes I earned more money but the math is the same and the math works!!

Make sure you know how the compound arithmetic is calculated.

The other thing we all suffer from is impatience.. This is why you have to set up your monthly saving contributions, then forget about it.. Don't even look at your portfolio when the wailing and gnashing of teeth starts.. When the market is recovering.. go back and take a peek and be pleasantly surprised..:)

In the meantime.. enjoy your life and relax..:)

Oh I stared a couple of years before you did and retired at 52..:)
« Last Edit: April 11, 2015, 11:08:06 AM by Exflyboy »

arebelspy

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You have only been at it a few years.  You don't start a marathon and decide after mile 6 that it isn't possible.

You've done the equivalent of saving 5 years of your 17 years worth of work (at a 50-60% savings rate, about that much time is required to get to 25x expenses).  That's a great start.

What's going to make your life better in 12 years--giving up, or getting more aggressive?  Keep it up. :)

I didn't start until my early 30s, but even if I started 10 years earlier, an early retirement wouldn't have been possible.

Of course it would have. You'd be 10 years ahead of where you are now. Plus both have a lot more invested in the stock market over the last seven years.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Villanelle

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As others have pointed out, the picture is nowhere near dire.

That said, if you don't like the math you see above, I'd say that focusing on additional income is they way to go.  Can you find a better paying job?  Ask your boss for a raise (even a couple thousand a year will make a real difference)?  Find a side gig (tutoring, repaid, selling something you make, teaching a class of some kind, consulting)?

And it seems like you are rejecting additional cuts because you aren't going to see tens of thousand of dollars a year.  That one or two thousand dollars a year, over the next 10 years is ~$15,000, and that's before growth.  After growth, it would be roughly one year of retirement covered.  Well worthwhile.  You think you are turning your back on "only a thousand or two", but really, you are turning your back on about $25,000 by the time you reach retirement, about a decade from now.

Kaspian

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You should be done at age 49.  ...Which is technically 'early' and pretty damn good considering most people these days complain that they'll have to work past 65 and probably die with debt.  Just hang in there!  :)
http://networthify.com/calculator/earlyretirement?income=52000&initialBalance=125000&expenses=23400&annualPct=7&withdrawalRate=4

« Last Edit: April 11, 2015, 12:38:02 PM by Kaspian »

Valhalla

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In addition to the savings aspect, try to make your work more meaningful, or find more meaningful work that you enjoy in the field.

That way, you don't have "count down" to the days of FIRE, but enjoy the journey.

sol

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Let's not forget that "early" retirement doesn't mean you get to skip out on the hard years of savings.  If the OP's question is basically "I'm 39 and just started saving, why can't I retire at 30 like MMM?" then I think the answer is pretty obvious. 

Anyone who manages to save ~half of their income can retire in ~15 years.  If you don't start until you're 40, then your "early" retirement with that plan is going to be at age 55.

ambimammular

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Saving is a long game. Give yourself some smaller markers along the way so you can feel the progress.

Figure out, say, the cost of feeding the cat/vet bills, multiply that by 25. That little goal gives you something easily achievable in a short time. And a bit more tangible than RETIREMENT.


MDM

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You will be able to retire at 54

You should be done at age 49

Given the different assumptions that went into them, both of these are "correct."  Real life, of course, will be the ultimate arbiter.  Lots of good advice already given.

Exflyboy

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You know.. I wonder how many of these types of posts we'll see when the next recession comes along?

So far this is the only post I have seen of this type, and while we all "know" the future is much brighter than the OP thinks (thankfully), when the next big one comes when day after day we'll see our portfolios reducing by thousands of dollars per day and the CNBC will report financial armageddon day after day.. will we see more?

In fact I wonder if I have the resolve to stick with the plan i tell myself I do today?

I guess the one thing we have is that we have all lived through the 2008 crash.. so we know that all ended well..:)

The Beacon

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My wife and I started tracking our expenses in 2009. Our cost for 2009 was 20096.63 that included everything. I am not sure how you spend 25k. If it is just for yourself, I think there might be room to cut it more.

If I were single, my budget would look like this

1. 300 dollars to rent one room
2. 200 dollars for food per month
3  100 dollars for utilities
4. 100 dollars for miscellaneous stuff like (shoes/clothing/gas/cell).
5. 100 dollars for any unexpected needs

That is a total of 800 dollars per month.   In this case, I think you can put away 30k a year for investment with your 52k salary.  If nothing too bad happens in the stock market, you can retire in 8-10 years.

On top of this, I might find a side gig over the weekends. That might shave a year or 2. I think it is totally doable. 




 

JLee

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You know.. I wonder how many of these types of posts we'll see when the next recession comes along?

So far this is the only post I have seen of this type, and while we all "know" the future is much brighter than the OP thinks (thankfully), when the next big one comes when day after day we'll see our portfolios reducing by thousands of dollars per day and the CNBC will report financial armageddon day after day.. will we see more?

In fact I wonder if I have the resolve to stick with the plan i tell myself I do today?

I guess the one thing we have is that we have all lived through the 2008 crash.. so we know that all ended well..:)
For those of us very early in the FIRE track a financial armageddon would probably be helpful - but it'd be quite unfortunate for those about to FIRE.

Bob W

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You already are FI and just don't know it.   Buy a nice home in spfd mo for 50 k with a total monthly expense of 450.  Take a roomate for 200. Phone =10.  Bike free.  Food = 100.  Misc = 50.  Total annual expenses = 5k.   Your return on 115k swr will be 10 k. (See milesdividendmd.com post on how to safely get returns of 17% using the same vanguard funds noted here through dual momentum investing).  You can travel 50 days per year churning credit card rewards.  You can earn an additional 4 k per year following doctor of credit.com  checking acct and other free money churns.     Plus you only need 22 years of income as social security will kick in then.          The numbers work and then some. You could live like a king in Ecuador on $1,000 per month as well.       You are rich my friend!

arebelspy

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My wife and I started tracking our expenses in 2009. Our cost for 2009 was 20096.63 that included everything. I am not sure how you spend 25k. If it is just for yourself, I think there might be room to cut it more.

If I were single, my budget would look like this

1. 300 dollars to rent one room
2. 200 dollars for food per month
3  100 dollars for utilities
4. 100 dollars for miscellaneous stuff like (shoes/clothing/gas/cell).
5. 100 dollars for any unexpected needs

That is a total of 800 dollars per month.   In this case, I think you can put away 30k a year for investment with your 52k salary.  If nothing too bad happens in the stock market, you can retire in 8-10 years.

On top of this, I might find a side gig over the weekends. That might shave a year or 2. I think it is totally doable. 

The only flaw with plans like this is it sticks you into that scenario forever.  If you're good with that, fine, but I think most people--even ones who would be willing to sacrifice while accumulating for FIRE--wouldn't want to rent a bedroom in someone else's house for their whole lives.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Rubic

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fizzgig: Not much to add to what others have posted here, except to say that both in savings and attitude, you're probably well ahead of your peers.  The snowball effect in your later years isn't obvious now, but there will be a time that you won't be able to work enough hours to match your passive income.  This is a great feeling.

A further observation:  If your current trajectory has you retired at age 55, you have an additional benefit.  Social security will be a safety net that you can enroll in at an optimal time in your life (possibly deferring until age 70 for maximum annual compensation), so the years you spend relying solely on your savings is reduced (7-15 year span).

The Beacon

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My wife and I started tracking our expenses in 2009. Our cost for 2009 was 20096.63 that included everything. I am not sure how you spend 25k. If it is just for yourself, I think there might be room to cut it more.

If I were single, my budget would look like this

1. 300 dollars to rent one room
2. 200 dollars for food per month
3  100 dollars for utilities
4. 100 dollars for miscellaneous stuff like (shoes/clothing/gas/cell).
5. 100 dollars for any unexpected needs

That is a total of 800 dollars per month.   In this case, I think you can put away 30k a year for investment with your 52k salary.  If nothing too bad happens in the stock market, you can retire in 8-10 years.

On top of this, I might find a side gig over the weekends. That might shave a year or 2. I think it is totally doable. 

The only flaw with plans like this is it sticks you into that scenario forever.  If you're good with that, fine, but I think most people--even ones who would be willing to sacrifice while accumulating for FIRE--wouldn't want to rent a bedroom in someone else's house for their whole lives.
I actually did not suggest that the OP  live like that forever.  It is just tighening the belt before your money reaches a critical mass for compounding. Once OP has accumulated 650k or whatever number he would like his life style based on, he should be able to live better.

The Beacon

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My wife and I started tracking our expenses in 2009. Our cost for 2009 was 20096.63 that included everything. I am not sure how you spend 25k. If it is just for yourself, I think there might be room to cut it more.

If I were single, my budget would look like this

1. 300 dollars to rent one room
2. 200 dollars for food per month
3  100 dollars for utilities
4. 100 dollars for miscellaneous stuff like (shoes/clothing/gas/cell).
5. 100 dollars for any unexpected needs

That is a total of 800 dollars per month.   In this case, I think you can put away 30k a year for investment with your 52k salary.  If nothing too bad happens in the stock market, you can retire in 8-10 years.

On top of this, I might find a side gig over the weekends. That might shave a year or 2. I think it is totally doable. 

The only flaw with plans like this is it sticks you into that scenario forever.  If you're good with that, fine, but I think most people--even ones who would be willing to sacrifice while accumulating for FIRE--wouldn't want to rent a bedroom in someone else's house for their whole lives.
I actually did not suggest that the OP live like that forever.  It is just tightening the belt before your money reaches a critical mass for compounding. Once OP has accumulated 650k or whatever number he would like his life style based on, he should be able to live better.

arebelspy

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My wife and I started tracking our expenses in 2009. Our cost for 2009 was 20096.63 that included everything. I am not sure how you spend 25k. If it is just for yourself, I think there might be room to cut it more.

If I were single, my budget would look like this

1. 300 dollars to rent one room
2. 200 dollars for food per month
3  100 dollars for utilities
4. 100 dollars for miscellaneous stuff like (shoes/clothing/gas/cell).
5. 100 dollars for any unexpected needs

That is a total of 800 dollars per month.   In this case, I think you can put away 30k a year for investment with your 52k salary.  If nothing too bad happens in the stock market, you can retire in 8-10 years.

On top of this, I might find a side gig over the weekends. That might shave a year or 2. I think it is totally doable. 

The only flaw with plans like this is it sticks you into that scenario forever.  If you're good with that, fine, but I think most people--even ones who would be willing to sacrifice while accumulating for FIRE--wouldn't want to rent a bedroom in someone else's house for their whole lives.
I actually did not suggest that the OP  live like that forever.  It is just tighening the belt before your money reaches a critical mass for compounding. Once OP has accumulated 650k or whatever number he would like his life style based on, he should be able to live better.

If you're retiring in the quickest amount of time (as implied by your 8-10 years) based on the Simple Math, your spending in FIRE must match your current spending.  That's how the math works.  Or you have to work longer.  Which is fine, but it implies what I said--one may want to sacrifice in FIRE, but not afterwards.  I'm just pointing out your plan is fine for accumulation, but it'll take longer than you posit, if they want to increase their spending afterwards and not just rent a room forever.  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

The Beacon

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My wife and I started tracking our expenses in 2009. Our cost for 2009 was 20096.63 that included everything. I am not sure how you spend 25k. If it is just for yourself, I think there might be room to cut it more.

If I were single, my budget would look like this

1. 300 dollars to rent one room
2. 200 dollars for food per month
3  100 dollars for utilities
4. 100 dollars for miscellaneous stuff like (shoes/clothing/gas/cell).
5. 100 dollars for any unexpected needs

That is a total of 800 dollars per month.   In this case, I think you can put away 30k a year for investment with your 52k salary.  If nothing too bad happens in the stock market, you can retire in 8-10 years.

On top of this, I might find a side gig over the weekends. That might shave a year or 2. I think it is totally doable. 

The only flaw with plans like this is it sticks you into that scenario forever.  If you're good with that, fine, but I think most people--even ones who would be willing to sacrifice while accumulating for FIRE--wouldn't want to rent a bedroom in someone else's house for their whole lives.
I actually did not suggest that the OP  live like that forever.  It is just tighening the belt before your money reaches a critical mass for compounding. Once OP has accumulated 650k or whatever number he would like his life style based on, he should be able to live better.

If you're retiring in the quickest amount of time (as implied by your 8-10 years) based on the Simple Math, your spending in FIRE must match your current spending.  That's how the math works.  Or you have to work longer.  Which is fine, but it implies what I said--one may want to sacrifice in FIRE, but not afterwards.  I'm just pointing out your plan is fine for accumulation, but it'll take longer than you posit, if they want to increase their spending afterwards and not just rent a room forever.  :)

Here is my math. I gathered the following from OP's Post
1: He already has 125k
2: His annual salary is 52k.

If he puts away 30k a year in his 401k and  the market returns an average of 8% a year,  he would have 700k in 10 years.

If he puts away 25k a year, he would have 632,029.69 in 10 years. That is very close to his 650k,  With the 4% withdrawal rate, it would be around 25k.  So he could live better then


Of course, if the market crashes, then it would be a different story.