Today’s post is a guest post by Keith Schindler a.k.a. Shin of MoneyIsNotTaboo.com. If you haven’t checked out his blog before, do it! He’s got lots of great information to share.
“So how far are you from retirement?” Most people would quote a number of years, some might say never. Why not retire at a dollar amount, instead of an age?
“Retirement: The action or fact of leaving one’s job and ceasing to work.”
Well, I have to agree with some of that. To me, retirement is leaving one’s job, but not necessarily ceasing to work.
I retired in 2014 at age 54, after 27 years in education, but I haven’t quit working. I run two blogs and do freelance writing and web editing.
The neat thing about my current work? I get to do it when ever I want to and wearing what ever I want to. Now I don’t make a ton of money, but it keeps my mind sharp and allows me to make a little extra coin.
My Dad never actually retired, although he could have. Dad worked for IBM for decades and put away a bunch of money and stocks, and then “officially” retired, in 1987, with a great package. Thing is, he went right back to IBM as a part time employee, then went the contractor route, even though he didn’t need the money.
That was time away from home, away from my Mom, and having to follow other folks’ schedules.
Ten years later, 1997, he died from heart disease, the year he said he was going to retire.
That wasn’t going to be me. In 1998 I was also diagnosed with heart disease. At that time I knew that I was not going to follow in my Dad’s footsteps. Nope, I was going to bail earlier than most.
As an educator in the state of Texas, my full retirement would come when my age and years of service hit 80. That’s what I was shooting for. I HAD to participate in the state’s retirement plan, which was one of the best things ever. I was forced to put money away when I probably wouldn’t have.
Luckily, I learned a number of years later to invest more than just my mandated retirement deposits and my wife and I pumped money into investment accounts. Because of our planning, she was able to retire in 2009 at 50.
In 2014 I had to have a triple bypass. It was a shocker.
From the time of my diagnosis in 1998, I was able to control my heart problems with meds and diet. When I learned that I had to have surgery, I decided that it was time to “Pull the Plug” on working. I had just hit my “80” at the Junior College and it was time.
So, it sounds like I’m talking about age, not a dollar figure. I’m not. I retired in my 50’s, not in the 60’s or 70’s when most folks retire. Nope, I retired when we hit the dollar amount that would pay our bills and provide for some “Fun” money.
I wish I’d known earlier of the possibility of retiring even earlier than 54 years of age. Well, better later than never.
If you’re in your 20’s, 30’s, and even 40’s, you have an advantage over me. You have time on your side and the wealth of knowledge that the Inter-Web provides.
If you start socking away a bunch of money, earlier than I did, then you can retire sooner than I did.
So, how do you go about doing that? Good question and I’m going to try to answer it the best that I can.
Courtney recently wrote her Your Average Dough post, “Your Basic Guide to Retirement” and “Retirement for the Average Joe” for Money is not Taboo, in which she shared some great information. It’s awesome that she has such an understanding at her age. I wish I did when I was so young.
Anyway, I’m going to share an “Old Fart’s” thoughts.
Why Should You Start Retirement Investing as Soon as Possible?
Time. The power of time. Couple that with compounding interest and you have a WONDERFUL thing to build on.
I started working at age 13, running my own lawn care business. I started my first official job at 15, washing dishes at a local cafeteria. Man, I wish I’d started putting retirement money away back then.
Of course, at those ages, retirement is not on the radar. No way. My biggest concern was buying model kits, cars, girls, and such. Heck, I had tons of time before I retired so I didn’t give it any thought.
EXACTLY! I had tons of time. Time that I wasted, by not socking money away. Wish I’d known then what I know now.
Let’s take a look at what time can do.
By investing $12,750.00 a year, on top of a $100.00 opening investment, earning 8%, one could have about $1,445,367 in 30 years. That’s making the investment deposit annually.
So, how much can you withdraw each year without running out of money? If you use the popular 4% rule (more on that here), you could take out roughly $57,814.68 a year, or $4,817.89 a month. Not, too bad, huh?
Now, let’s look at making monthly investment deposits with the other variables the same.
The only change is monthly investment deposits vs annual investment deposits. Do so results in an increase in the portfolio by the amount of $138,488.00.
Once again, time has played an advantage. By socking money away each month, the compounding interest adds up.
Withdrawing 4% from $1,583,855.00 results in an annual income of about $63,354.20, or $5279.52 monthly.
How does the retirement money number vs retirement age come into play?
The money number is the amount that you need to cover all your expected annual expenses. It doesn’t matter what age you retire, as long as you have enough money socked away.
Don’t need $63K or so a year, then you don’t need to put as much away.
Need more than $63K a year, then you’ll need to put more money away.
The average retirement age in the USA is 63. I retired 9 years sooner because we hit the money number that we needed to pay our bills and have fun money. Many folks will do it even sooner than I did. Unfortunately many won’t.
Had we both been in higher paying jobs over the years, we probably could have built a larger portfolio, had we known how to do so, and we’d have a bit more money. Oh, we’re not hurting for it, I just don’t have as much to play with right now.
It’s a trade off, though. We’ve chosen less money so that we have free time. I am working on the more money aspect, but not by going to a J-O-B.
So, what can you do to reach your retirement goals?
Keep Track of Your Cash Flow
You need to make sure that you always have “More Money Than Month.” You know, extra cash that can be invested. Setting up a budget will help you do so. If you don’t, then you need to look at two things, where you can cut expenses and where you can make more money. A great resource to help with where to make more money is in Young Adult Money founder’s book Hustle Away Debt.
Don’t Just Save, Invest
The old saying “A Penny Saved is a Penny Earned” doesn’t really stand the test of time these days. My wife and I have money saved all around the house. We’ve already earned it, but it’s not earning for us. It’s just there to use if we need/want to. The invested money has and is making us money.
Yep, we got caught up in the “Gotta Have This and That” and used debt to get it when we didn’t need it and didn’t have the means to pay for it. To be honest, we still have some debt, including our mortgage. We’re working on it, but we’ve not gone down the “Debt Road” that many folks have.
Always Pay Yourself First
Early on, I made a point of setting up mandatory payments to the “Schindler Family Fund for Fun and Finer Living.” It was a “Bill” that had to be paid EVERY month, and it was paid religiously when I learned how to do so.
Reduce Your Tax Liability
Want to have more money to invest? Give less to Uncle Sam. There are numerous ways to lower your tax bill. You can put them in place, or use a CPA to help you. Personally, we use a CPA as our tax situation is complicated.
Take Advantage of Free Money
If your employer offers a 401k program and contributes, by all means, participate and contribute the maximum that will be matched. The employer contribution is free money that can help you achieve your retirement goals.
Okay, so that’s 5 strategies from “This Old Fart.” Don’t take my word for it though. Here’re some other good resources to look into.
The Shockingly Simple Math Behind Early Retirement – Mr. Money Mustache
4 Secrets of Early Retirees – The Motley Fool
7 Simple Strategies to Retire Early – Forbes
The Secret to Early Retirement – The Financial Samurai
I have a Biker Buddy who just retired at 50. Like me, he learned later than he’d have liked to, but he’s not in his 60’s. You don’t have to be either.
With the resources above and others that you can find on the inter-web, you can put together an early retirement strategy.
It’s not going to just happen. It can’t be just a dream. You’re going to put things in place and work towards them.