Author Topic: Wanting to retire early, need help developing a strategy  (Read 3330 times)

BKrueger

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Wanting to retire early, need help developing a strategy
« on: February 28, 2016, 06:16:21 AM »
Hi All,
So here is my situation. I am currently 30 and my wife is 31. We are both Active Duty Military and our goal is to be retired at 40. We have no debt other than our house ($208K) and we have our emergency fund in place ($15K).

We each have a TSP (Life cycle 2050 fund) and Vanguard Roth IRAs (Target Retirement 2050 fund) accounts and we contribute about $450 into each account every month (4 accounts with a total monthly investment of $1800). We currently have a total of $72K between all of our retirement accounts. If we continue investing at this rate and the market continues with historical averages we will have about $2M when we hit 59.5. Our plan is to continue to contribute to these accounts until we retire from the military and then leave them alone until we are 59.5. We do not want to touch this money before then unless we absolutely have to.

A little info on our current finances. We owe no debt other than our house.  Our annual take home pay is about $108K and our expenditures are $45K for what I consider "must pays" (mortgage, utilities, groceries,etc.) With another $25K spent on what we consider the "would be nice" stuff (entertainment, travel, money for our personal hobbies, bars/booze, etc.). I will admit, we spend a lot on travel as that is our passion...especially long motorcycle rides with friends. We are pretty frugal with most of our large purchases. We buy used cars and Craigslist is our website of choice when buying furniture and for large purchases.

We would like to retire from the military and take up part time civilian jobs on base in Europe so that we can take advantage of the travel opportunities. We also really enjoy the slower pace of Europe. I want to work part time as a teacher and my wife wants to work part time as a medical technician (the same job she does right now). Based on the salaries for these jobs we think we can earn about $30K a year net working them part time. Our military retirement will be about $47K a year (net) so I am pretty sure we will be able to cover our costs in retierment.

 Currently, at the end of each month we have about $1500 left over (after we invest in TSP/Roth). I would like to start investing this money in an account that we can grow for the next 10 years so that we can have a little bit of a cushion from age 40-59.5. At 59.5 we would start drawing the money from our retirement accounts. I would like to start investing it in a taxable account that way we would have access to the money at 40 when we would need it. However, I am not sure what assets I should put that money into.

So my main question is two parts: Is a taxable investment account the best way to go? And what assets should I put in that account? I am looking to be pretty aggressive with this account and would like to earn at least 8% on the money in the next 10 years. Any and all help would be much appreciated and sorry if I got a little long winded!

Interest Compound

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Re: Wanting to retire early, need help developing a strategy
« Reply #1 on: February 28, 2016, 06:39:20 AM »
Hi All,
So here is my situation. I am currently 30 and my wife is 31. We are both Active Duty Military and our goal is to be retired at 40. We have no debt other than our house ($208K) and we have our emergency fund in place ($15K).

We each have a TSP (Life cycle 2050 fund) and Vanguard Roth IRAs (Target Retirement 2050 fund) accounts and we contribute about $450 into each account every month (4 accounts with a total monthly investment of $1800).

...


Currently, at the end of each month we have about $1500 left over (after we invest in TSP/Roth).

...

I would like to start investing it in a taxable account that way we would have access to the money at 40 when we would need it. However, I am not sure what assets I should put that money into.

So my main question is two parts: Is a taxable investment account the best way to go? And what assets should I put in that account?



It seems like you're still in the 401k/TSP box, as $450 a month doesn't come close to maxing this out. You're probably unaware of all the ways you can withdraw funds from your IRA and 401k without penalty before age 59.5, so I recommend checking out that link :)

When you're ready for a taxable account, the rule of thumb is to view all your accounts as a single portfolio, and invest accordingly to maintain your asset allocation. Since you're in LifeCycle and Target Retirement funds in your retirement accounts, which probably has you at 90/10 stocks/bonds at your age, I'd just keep things simple for now and go 100% stocks in taxable. To match your Vanguard Target Retirement fund, that means 60/40 VTSAX/VTIAX (USA/International) stocks in taxable.

Nords

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Re: Wanting to retire early, need help developing a strategy
« Reply #2 on: February 28, 2016, 06:01:28 PM »
Sounds like you're doing fine. 

I'd try to maximize your contributions to your Roth TSPs and your Roth IRAs, and then put the rest into the Vanguard taxable passively-managed equity  index of your choice.  If you're in L2050 funds in your retirement accounts, and if you're getting a dual-military pension, then you can afford to be 100% equities in the taxable account.

Woody Viet

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Re: Wanting to retire early, need help developing a strategy
« Reply #3 on: February 29, 2016, 02:38:59 AM »
Where are you guys living right now? I'm guessing when you move over to Europe you'll sell up the house and then move into rentals or buy something new in the country you choose to live in. I'd recommend checking out www.numbeo.com/cost-of-living/ to compare the cost of living of where you are and places you're considering living. You could probably retire for a lot less than what you're currently living on in the South or East of the continent. My parents recently retired to the south of Spain and they live a very exuberant lifestyle for roughly $27k a year.

As for your investments definitely look into something like a Roth ladder. If you don't plan on touching the money then go 90-100% stocks, assuming you can stomach seeing it going up or down. You can probably expect 5% returns adjusted for inflation on a globally diversified portfolio with this route. You could also still draw off 1-2% a year (just dividends for example), using it to supplement your income whilst seeing capital growth of 3-4% per year in the long run. Do you guys have any goal for the money once you get to your 60s?

BKrueger

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Re: Wanting to retire early, need help developing a strategy
« Reply #4 on: March 20, 2016, 08:38:57 AM »
This response is long over due.  Sorry for the delay, but I was "out of town on business" and didn't really have access to this website or many others for quite some time.  It does look like the Roth Ladder is going to be the best option.  My wife right now believes that we will retire at 40 from the military and never work again.  While that is certianly the plan, I think I will feel differently after a few years of not working.  I took advantage of the Tuition Assistance programs that the military offers and got a graduate degree in education and have a real passion for teaching, and school administration.  At some point, I think I will go back to work doing that.  But we will see.  The Roth Ladder offers us the flexabilty to use the money if we decide not to work while still allowing us to use traditional inversting to lower our taxable income.  Thanks for the idea!

The Numbeo site was excellent!  That really opened my eyes to the fact that there are very cheap places to live in Europe.  My wife and I intend to live in Sicily when we retire and after using the cost-of-living calculator I was surprised by how inexpensive out lifestyle would be over there.

Once we turn 60 we don't really have a lot of plans for out money.  Essentially the way we are looking at retirment, we are going to lvie the same lifestyle at 60 that we are living now.  We don't spend a whole lot of money on anything and we don't buy into consumerism or "keeping up with the Jones's."  We don't have any kids and we don't intend on having kids.  We do have some neices and nephews so we will help them will college. Other than that...there are no plans after 60 that differ from our plans after 40.

Seppia

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Re: Wanting to retire early, need help developing a strategy
« Reply #5 on: March 20, 2016, 10:42:14 AM »
Only thing you have to worry about in Sicily is quality of healthcare and (if you have kids) education.
Both are pretty poor.
I'm Italian btw

Woody Viet

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Re: Wanting to retire early, need help developing a strategy
« Reply #6 on: March 20, 2016, 08:23:11 PM »
Yes, Numbeo is so good! I used it to compare my living costs here in Vietnam and my old place in the UK and it came out very close.

If I were in your shoes I would do a sort of grand tour of the Med before deciding where to settle down, renting an apartment in each region for a few months and then exploring the local area. That way you can scout out all the countries and pick the one you really like. My parents had already decided on Spain but it took them a while to find the region they liked. They ended up getting a great place after 4 months but only found it because they did the homework.

Healthcare in Spain is excellent, not so sure about Italy. Certainly worth checking that out before you guys buy a place and settle in.

Seppia

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Re: Wanting to retire early, need help developing a strategy
« Reply #7 on: March 21, 2016, 01:20:51 AM »
Healthcare in Italy, very roughly put (there are exceptions obviously) is more or less on par with the world's excellence north of Florence
Acceptable from Florence to Rome
Subpar from Rome down.
It's very sad but that's the reality of our infrastructure in general.