About three and half years ago, I wrote about our plan for early retirement. I wrote it knowing that planning for things that far in advance are not going to as planned. Still, it is important to put a road map into place and make adjustments along the journey as conditions change.
The plan was a series of five posts covering various aspects of our retirement plan. I encourage you to read them starting with the link above as there is a lot of background that I'm not going to repeat here. To give a complete picture, I'll squeeze them and the updates into one post. As you read this, please note that I'm going to liberal with the vague estimates:
Where We Are Now (Original article)
At the time I put my wife and my net worth at around $400K combined. We keep most of our finances separate and I haven't checked in with recently, so I'll have to take a stab at our assets being between $500K-$600K. The lower end would be due to the decline in real estate prices. Our real estate assets will be covered a bit later.
The next thing to look at is income. Combined my wife and I make in between $150K and $175K a year - pre-tax. After adjusting for taxes that's probably between $110K and $130K. We spend roughly around $60K and $70K a year. That gives us around $50-60K to save. These are estimates and that finally number does sound a little on the high to me. In any case, that's what we'll go with.
My Personal Income (Original article)\
As I wrote above, our finances are kept mostly separate. I run some websites include this one which make me some money. I hope to continue to run businesses into my retirement, but betting on blogs to exist 30 years from now seems a bit naïve. I still think that I'll be able to provide value to people and find a way to turn that value into income for myself.
I also have a Roth IRA and a SEP-IRA with around $160,000 in them. It's dangerous to try to compound that money and project it to 30 years from now, but I'm in a risky mood. With no more contributions and presuming a 4% growth after inflation that could be worth $520K. Since I accounted for inflation (or hoped to) in the growth rate, we can think of that as accounting for at least 10 years of retirement if use $50K a year for living expenses. It is actually quite a bit more than 10 years since it will continue to earn interest during those 10 years while I'm withdrawing funds to live on. Bonus points to a commenter who can connect me to a good financial calculator for this. (Note: Bonus points can't be used for goods or services.)
I also have a rental property. It has 21 years of mortgage on it. After I do some necessary updates, it should throw off money each month. Or, in a worst case scenario, it would be a place big enough for my wife and I to live in, eliminating our cost of housing (except those pesky property taxes). Lesson: Never underestimate the value of the forced savings of a real estate purchase.
The hope is that between my business, my retirement nest egg, and my rental properties, I've got enough diverse assets to cover my needs.
My Wife's Plan (Original article)
As I mentioned on the article earlier this week, my wife gets a military pension after 20 years of service. I supposed this pension wouldn't qualify as retiring, but she'll be 44 at the time, which qualifies for early. I went into great detail a variety of options, but it looks like her pension is worth anywhere from $50,000 to $80,000 depending on how long she works, a potential promotion, etc. That's adjusted for inflation, which is very important. If she only had this, and I continue to pull weight with my plan above, we should have an income nearing 6 figures, or possibly over. (Side note: The original article included analysis from Plugged in Finance, who I haven't heard from in quite a long time, but they are still blogging, even writing an article earlier this year of what is my military pension worth?)
My wife doesn't expect to retire after she leaves the military, so we'll be able to "double-dip" in the income bucket for a few years. Of course what we expect and what happens might be different things. She's also been contributing to her TSP (military's version of the 401k) and Roth IRAs which will add a traditional retirement portfolio to our cash flow. She has a rental property as well and it will be paid in full in 18 years. Like my rental property, with some much need updates at that time, it will start to pay us a monthly income.
Obstacles, Expenses, and Conclusion (original article)
When I wrote the series almost 4 years ago I didn't have clarity on a number of things. The biggest factor is that we didn't know if we'd have children. With a baby boy on the way earlier this year, that question is at least partially answered. Using the calculator at Baby Center, it looks like it might cost $400K. The site budgets $8300+ a year for housing as the biggest expense. Since we plan to stuff junior in a closet, we can save some money there (just checking to make sure you are following along).
Update: One huge factor that I had forgotten about in writing this article originally is that the Post 9/11 GI Bill. It allows my wife to transfer the her education benefit from the military to our upcoming child. I wasn’t sure that we qualified, but over the last couple of days, it appears that we do. The benefit is significant… free 4-year tuition at a state school (or $17,500 inflation-adjusted at a private school), plus a living stipend of around $15,000-25,000 a year (it's adjusted for cost of living in the zipcode of the college/university), and $1000/yr for book and supplies. I conservatively estimate the value at $150,000, but it could be much more.
Health care was another great concern I highlighted in the previous article. From my 16 hours in military retirement boot camp, it seems that health care won't be that expensive... about $500 a year for what we have now. This is a heavy burden lifted.
The previous article also mentioned that living in Boston or San Francisco would have expensive housing. We bought another home in Rhode Island last year with a 15-year mortgage. The rent almost covers the expenses, which means that we will be close to having the place paid for by the time we retire. This home is big enough for the three of us (plus our dog). If we choose to make this our residence, it will free our other two properties to produce income.
One thought that I should have mentioned earlier is that I feel that the very definition of retirement is extremely vague. For some it means just traveling and having no responsibilities. I think for me, it will mean still working, but doing something I very much enjoy that happens to make money.
Nearly four years later, I'm not sure we have any concrete answers about retirement. However, one thing I do feel pretty confident about is that we are heading in the right direction. I'm seeing positive progress from a number of sources. In fact there are enough sources that I didn't have to mention Social Security up until now. It will be around in some form when my wife and I reach age 70 (I'm presuming that will be the age it kicks in). That will be an extra lifeline.
What are your thoughts on early retirement? Are you going with the traditional method of investing in the equity markets and having some 2 million to withdraw on? Let me know in the comments.
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