There’s nothing like going back to work on a Monday after a nice long holiday weekend to make you daydream about leaving the rat race behind. I would like to think that I am already on the path to early retirement, but I often like to hash out “The Plan”.
Ages 30-45: Live simply. Buy a home you can afford with a 15-year mortgage. Yes, you can get approved for a larger loan with a 30-year amortization. Homes are a huge expense, and just because someone will let you doesn’t mean you should take on that much debt. If you artificially restrict yourself to what you can afford with a 15-year amortization, you’ll end up with something that can easily be paid off early.
Yes, taking advantage of low fixed interest rate for 30-year mortgage can be argued to be advantageous on a mathematical level. But I am still enamored with the simplified cashflow situation once this huge monthly expense is taken away. Right now, a full 2/3rds of my monthly expenses go towards housing costs.*
Live frugally, try to save regularly for retirement, advance in career and get pay hikes, raise kids, still enjoy life, yada yada.
Ages 45-65: Find consulting or part-time work which will cover remaining expenses. Now, after 15 years, I will only have to pay for everything else – property taxes, car, utilities, food, etc. This should only run about $35,000 a year. Lower required expenses means lower required income, which means I pay a lot less in income taxes. Split between my wife and I, we’d only need to find jobs that pay about $25,000 gross each per year. (Numbers will need to be adjusted for inflation.)
This opens up so much flexibility. Despite my beach bum aspirations, I already know that you can’t spend all day at the beach. There are so many alternative business and job ideas that we would enjoy doing, but currently wouldn’t dream of doing because we make so much more money doing what we do now. Jobs with less hours, less commuting, less dealing with stupid people. The money that we have saved up in tax-deferred accounts should remain untouched, and we will still add as possible.
Ages 65+: Work as possible based on health, start taking Social Security, withdrawing from retirement accounts I know that most young people are skeptical of Social Security, but in reality I doubt it is going to go away for people with moderate incomes. It will simply be too critical a safety net in the age of self-funded retirements. I can see there being a phase-out for high income earners (it’d be very difficult to phase out based on net worth) – but again, without a mortgage, we won’t need a high income. The current average Social Security check is $1,000 per month, or $12,000 per year. If both of us received that, that would already cover 50% of our expenses.
These are all rough numbers and you never know what life will throw at you, but it’s nice to have goals.
* No, you don’t necessarily need to buy a house to retire early. But it fits into my Plan nicely.
By Jonathan Ping | Retirement | 7/8/08, 5:51am