Early retirement

**Suprise** · 04-05-2010, 09:39 AM

I am a 23 year old stay at home mom but my husband is 29 year old and as a full time job. We would my husband to retire early about 50 maybe earlier if that's even possible. Now I know that one of the smartest things to do would be to get dept free and start really getting serious about saving money, but do any of you have other great tips to share with me? Anyone else thinking of early retirement?

Thanks

**Greebo** · 04-05-2010, 10:31 AM

What is your current income?
Do you expect that income to increase over the next 21 years?
Are you happy with your current level of lifestyle, or do you want it to go up?

**Suprise** · 04-05-2010, 07:18 PM

My husband just got another 1.50 raise so I'm not quite sure of our income but it's aprox. 32 000 net.

The income will increase gradually. No big promotions though since there won't be any career change. I might eventually get a part time job and save all my income.

I'm content with you current lifestyle. We're very simple people. We own a small house and are not planing to move.

**NikoSan999** · 04-05-2010, 08:49 PM

Good luck with your goals. Both of you.

**Greebo** · 04-06-2010, 10:57 AM

Ok, first of all, just cause I have to point this out, the word you want is debt - with a B, not dept - which sounds like a kind of store.

Debt is what you get when you shop in a dept store

Dept
Mortgage 137 597.47/138 160.27
Visa 2539.93/4440.00
Student loan 792.17/900

You will have a very hard time retiring while you carry this debt.

The FIRST thing you need to do in order to retire early is get your financial house in order - and that means getting rid of your debt.

You've got a mortgage that is not 2, not 3, but between four and five times your net household income. That's a big mortgage for your income. On a 32k income, your mortgage payment should be no more than $667 a month, including taxes and insurance. If your current mortgage is a 30 yr fixed at 5% (a great rate) then you're paying $741.67 - just on principal and interest alone.

So you need more income or less house.

On 32k take home, thats about 41k gross - once you get rid of your consumer debt (student loan and credit card), if you put 15% towards retirement (15% of gross), then you'll be investing 512.82/month. To retire at 50, you also have to invest AFTER TAX money, because at 50 you can't withdraw from 401k 403b or Roth plans w/o tax penalties, so on TOP of the 15% into the tax deferred plans, you need even more going into investments to allow you to live for 9.5 years (age 50-59.5).

So lets start with the tax deferreds. In order to retire, you need to have enough money invested where you can take money out of the account every year, but where the account still grows fast enough to beat inflation after your deductions. The rate of growth minus inflation is the amount you can live on at retirement (infl =4%, if your growth rate is 6% then you can live on 2%). If you don't hit those numbers, you run the risk of running out of money before you die. How fast depends on how much you take out over the spread - but regardless, it's always best to live under the spread.

So ignoring inflation for now - you need to be able to live on 32k a year, until the mortgage is eliminated at least - then you can drop out another $800/month or $9,600 a year. On a 30 year mortgage, your mortgage should be paid off JUST as hubby hits the 59 1/2 age, so once you hit full retirement, you now only need $22,400 a year.

Investing 512.82 a month, we need to determine what growth rate you need to be able to live on that rate minus inflation at 60. Since we fix inflation at 4%, your growth rate of your investments needs to be higher than inflation. So, lets start at 5% growth, which means at age 60 you'll live on 1%, and work our way up.
Growth rate - value in 30 years - 1% of that to live on
5% - $426k - $4,270 - not enough
6% - $515k - $10k - not enough
7% - $625k - $18.7k - not enough
8% - $7645 - $30.5k - enough!

So in your tax deferred plans, investing $512.82 a month, you need to invest in mutual funds (or some other equally good product if you can find one) with LONG TERM track records (since inception and > 10 years old) of better than 8%.

NOW lets look at 50-59.5. This problem is different. You need $32k a year (still have a mortgage), but for a fixed period (10 years to be safe - really 9.5).
So that's 320,000 you need in total.

Assuming we start with the same investment vehicle - the 8% mutual funds, now we know the target, and need to determine how much a month you must invest with purely after tax money to get to that point.

At 8%, starting today you need to invest an ADDITIONAL $550 a month for 20 years to have $320k saved up for the 10 years between 50 and 59.5 to retire that early.
At 9% you need $480/month
At 10% you need $430/month
At 11% you need $380/month
At 12% you need $325 a month

More than 12% is getting very hard to find - 12% can be found, however. (Federated Kauffman K for instance)

Now lets go back and look at 12% and its impact on age 60. If you invest in products at 12% for the tax deffered, by 60 that money will be over 1.7 mil and you'll have $143k a year to live on. The problem, of course, is you can't touch that till 59 and a half...but wow that's some money.

It's the age 50 goal that's going to be hard to achieve. On top of the 512 you already should put towards retirement once you are debt free that's another $325-$480/month. That puts your retirement investments at a minimum of $837 a month - and now we're talking more than your mortgage payment.

So - with your consumer debt, with the size of your mortgage, and your current income? Retiring at 50? Not going to happen.

Get out of debt, get in a cheaper house, and it's feasible - but will require a LOT of saving. Get the income up, and it'll get easier.

**Suprise** · 04-06-2010, 03:36 PM

Wow that's alot of information. I will have to read this a few times before I understand completely. I can see what your saying though it's next to impossible to retire at 50.

We are working hard at getting out of debt (hehe) this year. And we we're thinking of making extra payments on the house when we get extra money so that we can finish it earlier. We can't get something cheaper around here unless we would move to another province or live in a trailer. The big problem I supose is that I am not curently working. I will have to think about ways to bring in money.

Thanks for the information this was alot of help.

**Greebo** · 04-07-2010, 10:11 AM

Originally Posted by Suprise

Wow that's alot of information. I will have to read this a few times before I understand completely. I can see what your saying though it's next to impossible to retire at 50.

At least given the other variables being unchanged.

Now if you and/or he can get your income up, then every extra penny can go towards debt reduction and then retirement savings.

**monkeywrangler71** · 04-07-2010, 01:54 PM

Where do you live? I think some of Greebo's details may not be applicable, although I agree with the general sentiment that 50 is an unrealistic retirement goal without significant changes.

If you want to make it realistic, you first need to know and understand every detail of your finances. You can start by finding out your husband's income - gross matters, it's how you decide what type of investment gives you the greatest protection against taxes.

I assume your mortgage is fairly new. Extra payments in the early years have the biggest impact. Are you on an accelerated payment plan?

There are a lot of things you will need to think about. How many kids do you have and do you plan to pay for their education? Does your husband pay into a pension plan, and if so, is it a defined benefit or a defined contribution? Will you have other sources of income in retirement? Why do you even want to retire early - what are you planning to do for up to 50 years without working - and will those activities increase or decrease your cost of living? Do you live in or near an urban centre that is likely to sprawl into your neighbourhood and drastically increase your property taxes?

How much room do you have in your budget right now to put towards this goal? If you want a shorter savings window, you will need to be saving a higher percentage than most.

**Greebo** · 04-07-2010, 02:04 PM

Originally Posted by monkeywrangler71

Where do you live? I think some of Greebo's details may not be applicable,

HEY! Them's fightin' words!

Seriously - such as? Just curious.

**monkeywrangler71** · 04-07-2010, 02:11 PM

The 401k/Roth/tax bit. I don't think she's in the US.

**JanieD** · 04-07-2010, 02:22 PM

I'm quite interested in this thread, as we'd love to retire well before 67. However, I'm lost with the investment part of it. Any thoughts on where I could research/learn what is needed? We're good at living below our income, saving & no debt. Other income (possible business of our own) seems to be a good option to carry us from work for others to retirement (15 year period though). Just not sure what.

**Greebo** · 04-07-2010, 02:30 PM

monkeywrangler71 - OH yeah if she's not US then forget the tax deferred bits...

Originally Posted by JanieD

I'm quite interested in this thread, as we'd love to retire well before 67. However, I'm lost with the investment part of it. Any thoughts on where I could research/learn what is needed? We're good at living below our income, saving & no debt. Other income (possible business of our own) seems to be a good option to carry us from work for others to retirement (15 year period though). Just not sure what.

I would recommend you start with Dave Ramsey's "Financial Peace University" - it'll reinforce what you already know and give you a good grounding in how US retirement plans work, and the different types of investment vehicles available. And it's a FUN class.

**JanieD** · 04-07-2010, 02:35 PM

We were just talking about that over in the chat area. I have that link from earlier, Thanks! This is where I need to get things working for us... 2-5% on bank cds aren't going to cut it.

**Suprise** · 04-07-2010, 09:52 PM

Originally Posted by monkeywrangler71

Where do you live? I think some of Greebo's details may not be applicable, although I agree with the general sentiment that 50 is an unrealistic retirement goal without significant changes.

If you want to make it realistic, you first need to know and understand every detail of your finances. You can start by finding out your husband's income - gross matters, it's how you decide what type of investment gives you the greatest protection against taxes.

I assume your mortgage is fairly new. Extra payments in the early years have the biggest impact. Are you on an accelerated payment plan?

There are a lot of things you will need to think about. How many kids do you have and do you plan to pay for their education? Does your husband pay into a pension plan, and if so, is it a defined benefit or a defined contribution? Will you have other sources of income in retirement? Why do you even want to retire early - what are you planning to do for up to 50 years without working - and will those activities increase or decrease your cost of living? Do you live in or near an urban centre that is likely to sprawl into your neighbourhood and drastically increase your property taxes?

How much room do you have in your budget right now to put towards this goal? If you want a shorter savings window, you will need to be saving a higher percentage than most.

I live in Ontario, Canada.

We just changed the bank we had our mortgage with. We are on a 30 year mortgage and it's every 2 weeks so I think it cuts about 2 years off the 30 year mortgage.

We have 2 kids and yes we would like to help them with education but only a small amount.

My husband does contribute to a pension plan at work (companie contributes same amount) 135.00 per month.

Reason to retire early is simlply because we want to enjoy our lives, we would like to travel but mainly in Canada.

The area I live in is very small town and the chances that taxes go up are very small. Worst comes to worst we might sell the house and travel in a Winnebego. Actually that could be one of our options since I always loved Wennebegos. Haha less cleaning!

At this moment I don't have much room in my budget because of those darn debts. Once I have paid off my Visa and Student loan that would give me about 200.00 per month to put towards savings. That's not much which is why I will have to bring in more money.

Thanks for all those great questions. You got me thinking of alot of things I hadn't thought about.

**Suprise** · 04-07-2010, 09:56 PM

Originally Posted by JanieD

I'm quite interested in this thread, as we'd love to retire well before 67. However, I'm lost with the investment part of it. Any thoughts on where I could research/learn what is needed? We're good at living below our income, saving & no debt. Other income (possible business of our own) seems to be a good option to carry us from work for others to retirement (15 year period though). Just not sure what.

Hope this thread helps you too. Who wouldn't want to retire early right? haha