Author Topic: Not possible for everybody, right?  (Read 4955 times)

fizzgig

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Not possible for everybody, right?
« on: June 03, 2014, 11:03:23 AM »
For example, I'm 37 years old. My take home after-taxes money is about 30K. I live 2 miles from work. If I drive to work, (I do use my bike some of the time), I use my 7 year old car with 40K miles on it. I don't pay for cable or cell phone. My rent, including heat, is about 10K a year for me (It's about as cheap as it gets to live in northern NJ where housing prices are not an option for me). I make most of my own food and live off about 50 dollars a week in food bills. I don't have kids or any debt. I've accrued about 100K in savings so far.
So...MMM recommends 25 times your annual spending saved up to live off of forever. The thing is, even with my super-frugal lifestyle, I'll never reach that kind of amount before the usual retirement age. I have yet to figure out any kind of investing that isn't risky, I don't really want to risk anything I've worked so hard to save. I'm assuming that nailing the investment strategy would be the essential key, in this case? It's not really possible for me to save any extra significant amount of money than what I already am doing.

dragoncar

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payitoff

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Re: Not possible for everybody, right?
« Reply #2 on: June 03, 2014, 11:15:34 AM »
For example, I'm 37 years old. My take home after-taxes money is about 30K. I live 2 miles from work. If I drive to work, (I do use my bike some of the time), I use my 7 year old car with 40K miles on it. I don't pay for cable or cell phone. My rent, including heat, is about 10K a year for me (It's about as cheap as it gets to live in northern NJ where housing prices are not an option for me). I make most of my own food and live off about 50 dollars a week in food bills. I don't have kids or any debt. I've accrued about 100K in savings so far.
So...MMM recommends 25 times your annual spending saved up to live off of forever. The thing is, even with my super-frugal lifestyle, I'll never reach that kind of amount before the usual retirement age. I have yet to figure out any kind of investing that isn't risky, I don't really want to risk anything I've worked so hard to save. I'm assuming that nailing the investment strategy would be the essential key, in this case? It's not really possible for me to save any extra significant amount of money than what I already am doing.


Reading through, with this kind of mindset, you will not get to where you want to be, at 30k income and 10k expenses a year, that's more than half of you income that can possibly go to savings, so 7.5 years saving 20k/year will get you to $250,000 which gives you 10,000/yr at 4% SWR. you will be 44 years old by then.

You CAN DO it.

sirdoug007

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Re: Not possible for everybody, right?
« Reply #3 on: June 03, 2014, 11:22:16 AM »
You are right that you will probably never make it without investing your money.  Even in the super-saver 50%+ savings rate mode, returns have an important effect.  Take a look at the chart in this article by MMM:

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

Look at the 1% line.  That is where you are by keeping your money in cash/CDs today.  At a 50% savings rate you can cut nearly a decade off your time to FI by going from 1% to 10%. 

Think about it this way.  Without investing, you have to work 2 years for every year of retirement if you save 50% while you are working.  So if you start working at 23 and die at 90, you would have to work for 45 years to fund a 22 year retirement.  By investing and getting a real return of 6%, you cut your working time down to less than 20 years!  Investing in risky stocks/bonds really is a necessary part of retirement savings.

I would recommend the jlcollinsnh stock series to get you more comfortable with investing and how to do it with minimum risk.  http://jlcollinsnh.com/stock-series/

Northerly

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Re: Not possible for everybody, right?
« Reply #4 on: June 03, 2014, 11:24:50 AM »
You're in good shape, fizzgig! In fact, you are ready to crush it. You have capital and you have steady income. Take a look at rental real estate. If it doesn't work in your market, consider moving. The leverage, cheap debt, non-recourse loans, and tax benefits offered by real estate are difficult to match compared to other investments. Not advising that you go all-in on real estate, but for a low-income worker like yourself, it almost has to be part of the picture. Another great thing about rental real estate is that it is catalyzed by even unskilled labor: you can easily learn to do most household maintenace and property management. You will retire early!

nereo

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Re: Not possible for everybody, right?
« Reply #5 on: June 03, 2014, 11:30:31 AM »
For example, I'm 37 years old. My take home after-taxes money is about 30K. I live 2 miles from work. If I drive to work, (I do use my bike some of the time), I use my 7 year old car with 40K miles on it. I don't pay for cable or cell phone. My rent, including heat, is about 10K a year for me (It's about as cheap as it gets to live in northern NJ where housing prices are not an option for me). I make most of my own food and live off about 50 dollars a week in food bills. I don't have kids or any debt. I've accrued about 100K in savings so far.
So...MMM recommends 25 times your annual spending saved up to live off of forever. The thing is, even with my super-frugal lifestyle, I'll never reach that kind of amount before the usual retirement age. I have yet to figure out any kind of investing that isn't risky, I don't really want to risk anything I've worked so hard to save. I'm assuming that nailing the investment strategy would be the essential key, in this case? It's not really possible for me to save any extra significant amount of money than what I already am doing.
Hi - and welcome
You aren't too far from me, and there are others on this board who are in similar circumstances.  To start out, yes, there is hope.  You certainly won't retire in 4 years on your current salary, but I believe you can reach retirement much earlier than the standard 65 or even 62 years.

A few things first - there is no risk-free investments. Sure, you can stockpile money in FDIC insured bank accounts or buy US treasury bonds, but right now that guarantees low returns that historically won't even match inflation. For most people with long time horizons, investing in a low-cost index fund like the SP500 or total-market fund has the best chance of success - there's never been a 15 year time period when the SP didn't beat inflation, and 90% of 10 year periods beat inflation too. Historically, the Sp500 has given returns of about 7% after inflation.
I mention that because the likelihood of you reaching FI by saving in only "safe" places like savings accounts is virtually nil with your income.  But, if you let compounding work for you, the $100k you have already saved could grow to almost $700k by the time you turn 65. That would give you a retirement income about equal to your current income, forever, and that's without any other additions and earning just the historical return of 7%.  If you can sock away $3k per year your FI age could be 61.

Finally, I would disagree with you that "nailing the investment strategy [is] key" for you.  With your current savings ($100k), how much you can sock away each year is the most important factor in your control, at least now during the acclimation-phase.  Later, when you have $300k-$500k in your portolio, returns will become more important.
You mentioned you have $30k post tax and your lodging is about $10k/year (including utilities).  that leaves you with $20k.  AFter food you have $17,400.  Hopefully you are able to save close to half of that - plenty of people around here survive on <$10k/year after lodging, utilities and food. If you are 2 miles from work I question why you'd want to drive ever.

Take heart, keep saving and ask questions.

warfreak2

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Re: Not possible for everybody, right?
« Reply #6 on: June 03, 2014, 01:45:10 PM »
For example, I'm 37 years old. My take home after-taxes money is about 30K. I live 2 miles from work. If I drive to work, (I do use my bike some of the time), I use my 7 year old car with 40K miles on it. I don't pay for cable or cell phone. My rent, including heat, is about 10K a year for me (It's about as cheap as it gets to live in northern NJ where housing prices are not an option for me). I make most of my own food and live off about 50 dollars a week in food bills. I don't have kids or any debt. I've accrued about 100K in savings so far.
So...MMM recommends 25 times your annual spending saved up to live off of forever. The thing is, even with my super-frugal lifestyle, I'll never reach that kind of amount before the usual retirement age. I have yet to figure out any kind of investing that isn't risky, I don't really want to risk anything I've worked so hard to save. I'm assuming that nailing the investment strategy would be the essential key, in this case? It's not really possible for me to save any extra significant amount of money than what I already am doing.
Seems to me your mandatory expenses (shelter, heat, food) add up to ~$12,500 a year. I'm sure you spend a lot more than that (you have a car!), but remember that reducing your expenses is a double whammy: you save more, but crucially, that "25 times annual spending" that you have to save, goes down 25 times as much as your savings go up. Reducing your expenses has a much bigger effect than your investment strategy.

That said, if you're aiming for 25x expenses, you're implying a 75% stocks, 25% bonds asset allocation in retirement - that's what the 4% safe withdrawal rate works for - if you think that's safe enough to retire on, surely it's also safe enough for you to put your money in while you're working towards retirement.

I live a little further from my main job than 2 miles, but I always walk. Driving to work is the most obvious expense you can cut. You'd need to post what you're doing with the rest for us to make any more comments. It sounds like you already got your expenses pretty low so you should be saving quite a lot.

matchewed

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Re: Not possible for everybody, right?
« Reply #7 on: June 03, 2014, 01:51:40 PM »
Your investment strategy is important for the long term process of retiring. It is less important for the initial FIREing. There is risk in any investment choice. It is choosing which risks you are comfortable with that is important.

Out of your 30k take home pay how much are you saving? Or what is your savings rate currently?

Eric

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Re: Not possible for everybody, right?
« Reply #8 on: June 03, 2014, 01:58:03 PM »
Please consider the risk of having your money earning next to nothing in a savings account.  You're currently losing money everyday as savings account interest rates are less than inflation.  While stocks and bonds have the risk of losing some money, they also have the upside gain of making you money, whereas a savings account is a guaranteed money loser.

myDogIsFI

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Re: Not possible for everybody, right?
« Reply #9 on: June 03, 2014, 02:28:03 PM »
Another thing to consider is changing jobs.

Emg03063

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Re: Not possible for everybody, right?
« Reply #10 on: June 03, 2014, 08:53:44 PM »
Please consider the risk of having your money earning next to nothing in a savings account.  You're currently losing money everyday as savings account interest rates are less than inflation.  While stocks and bonds have the risk of losing some money, they also have the upside gain of making you money, whereas a savings account is a guaranteed money loser.
^this.

Also, consider boosting your income with a part time job or side business if you really want to FIRE.