Several people have asked (after reading about my background and financial goals) how I plan to retire in 14 years with 4 million, while still paying off a significant amount of student loan debt and a mortgage.
To clarify, 4 million is what my husband and I both intend to retire on, and this amount would also include the value of our (then to be) paid off house.
I realized this wasn’t clear at all from my post. So sorry about that!!
I put together a quick overview of our net worth goals from now until my husband and I both turn 45, and how we intend to achieve those goals.
I didn’t have much time to write it, so it’s sort of a back of the napkin explanation.
Of course, any number of events could cause us to deviate from reaching our goal.
- This plan does not build in the cost of having a kid (which I’m still on the fence about)
- It does not factor in medical emergencies and other catastrophic events
- It does not factor in a job loss or a job change (which might result in a lower salary)
- It factors in receiving side income, outside of our base and bonus, the amount of which isn’t predictable and could easily change.
- It also does not factor in sibling support outside of what I currently already budget for
- It only accounts for a 2.5% annual cost of inflation for expenses over 14 years. Whatever the actual cost, this plan assumes we’ll find a way to stay in our budget.
- It does not factor in any change in the value of the house, either positive or negative.
- On the upside, it also does not factor in any estimated salary or bonus increases over the next 14 years. It’s likely our salary will increase over this time, at least to keep pace with inflation.
Here’s a breakdown of our current income sources.
- Our combined compensation from work (base and bonus) is 257.5k. I earn 141k, the husband earns 126.5.
- I’ve also recently started consulting on the side, and what I currently make per month equates to about 36k per year. I’m trying to get the ol’ husband to do this too, although he’s been putting up a struggle ;o)
- We have 2 extra rooms in our house, which we recently started renting out through Airbnb. We live in a popular area, so demand is high. Our monthly Airbnb income equates to about 10k per year. We could easily triple this, but sadly the husband doesn’t love having strangers around the house. Humpph! :o(
- I’m also eligible for SPIFF awards at work, which could range from 5k per year to up to 20k, depending on how hard I compete for them. I usually only mentally plan on getting about 5k per year, just to be safe, although I often get way more.
- I am eligible for stock awards as well, although our company is steering away from that. These could actually go away any day.
- Both my husband and I also get 401k matches from our employer, which adds another 5k.
- Combining all sources of income, we can bring in over 300k in income per year, but I’ll just round down and assume we bring in an even 300k before tax. That way, anything above that would be a nice surprise.
- Once our student loan debt is paid off, our annual spending (including the amount I budget to help some of my siblings out) equals 70k per year.
- Because we’re doing a 15 year mortgage payment plan, our expenses appear really high. If the mortgage was paid off, this cost would equal 35k per year (expenses including support).
- In our budget, we also plan to buy a newer used car ever 10 years. It also includes all home related expenses – home repairs and maintenance, property tax and insurance, HOA, etc. We also add monthly to our emergency funds, and we have a separate ‘travel’ budget as well.
- This is an extremely generous budget, with plenty of buffer. We could spend much less than this if we needed to! (Owning our house, for instance, is a huge luxury and not a good long term investment. If we really wanted to minimize expenses, we could go back to renting.)
- If our income is 300k, assume a third of it gets deducted for taxes.
- Out of the 200k left, 70k (35%) will go to expenses – housing costs & mortgage payments, living expenses, and helping family. The other 65% (after our loans are paid) will go straight to investments & saving. I plan to increase this to 70% over time, but for now I assume we can only do 65%.
- Note that the 2.5% increase in expenses annually doesn’t apply to the 35k out of the 70k which goes toward the accelerated mortgage payments, since that’s a fixed cost.
- We’re both passive investors and favor index funds (I like Vanguard) over active investing. Since we’re relatively young and have a decently long investment horizon, we favor Total Stock Market Index Funds. We will eventually shift some percentage to bonds, but not for awhile.
- For our investments, we’ll assume an annual return of 7%, after inflation.
- On top of this, we also have a 15 year mortgage at a 2.5% interest rate (14 years left). I’d love to pay this off in under 10 years, although I know it makes more sense to funnel that additional money into our VTSAX accounts with Vanguard instead.
- Here’s what our net worth (assets – liabilities) should look like at the end of each year, over the next 14 years, if we continue with this plan.
- Note: our net worth factors in our total investments (taxable and non-taxable accounts) + cash + equity, – all expenses (including the mortgage liability). However, I don’t include the value of our paid off car or anything else we own.
|Net Worth w/ Mortgage Liability||Expenses w/ Mortgage||Age||Year|
|$ (303,459)||$ 70,000||31||2017|
|$ (139,939)||$ 70,875||32||2018|
|$ 123,593||$ 71,772||33||2019|
|$ 372,443||$ 72,691||34||2020|
|$ 634,308||$ 73,633||35||2021|
|$ 910,197||$ 74,599||36||2022|
|$ 1,200,942||$ 75,589||37||2023|
|$ 1,507,563||$ 76,604||38||2024|
|$ 1,831,150||$ 77,644||39||2025|
|$ 2,172,866||$ 78,710||40||2026|
|$ 2,533,957||$ 79,803||41||2027|
|$ 2,915,754||$ 80,923||42||2028|
|$ 3,319,683||$ 82,071||43||2029|
|$ 3,747,262||$ 83,248||44||2030|
|$ 4,192,527||$ 84,454||45||2031|
Our net worth will be negative through the rest of this year and next, as we pay down debt and build equity. This is mainly due to our remaining mortgage liability, which drags that number down.
If we sold the house at the end of this year, our net worth would technically be 140k, because of the equity we already have in the house + investments.
By the end of 2019, our net worth (inclusive of mortgage liability) will be only slightly over 6 figures.
4.5 years from now, it will be over 600k. If we sold the house then, we’d have ~918k.
Below is a breakdown of what our net worth would look like if we sold the house at any point in time.
Note: this doesn’t factor in that our expenses would increase with ‘renting’ costs, but also be reduced by the costs related to owning a house.
|Net Worth with Mortgage||Net Worth w/o Mortgage||Expenses w/ Mortgage||4% of Net Worth with Mortgage||4% of Net Worth w/o Mortgage||Age||Year|
This post assumes readers have a basic understanding of the 4% Rule, or the Safe Withdrawal Rate (SWR). If not, Jim Collins has a great post on the topic, which also links to other brilliantly helpful posts further down in the Addendum section.
In order to retire and live on the passive income, we need to build a portfolio of 25x of our targeted annual spend, and be able to keep a constant standard of living through retirement.
Our portfolio would have to have at least a 50/50 mix of stocks and bonds in retirement – preferably much more in stocks.
So if our targeted annual spend is 40k, our retirement number would be 1 million.
If you’re looking for a retirement calculator to help you calculate how much you need to retire on, try this one: FIRECalc. (Note: use Chrome or FireFox or else you won’t see all of the features offered.)
We don’t plan on spending anywhere near 4% of our portfolio in retirement. We expect to be much more conservative – probably closer to 2%, maybe 3%.
By the time we retire:
- Our 35k in expenses (reduced from 70k after the mortgage is paid) will then equate to about 50k, thanks to inflation.
- At the end of 2031, we’d likely sell the house and funnel the proceeds into our investments. That way, we have maximum flexibility to travel and do whatever we want!
- We will be retiring with far more than we actually need to cover annual expenses, but I don’t want to retire before I’m sure we have ‘enough’ money so that:
- a) we don’t have to be TOO frugal in our day to day living
- b) I can continue to support family if needed (extremely important depending on how late my younger siblings stay attached to the cult)
- c) I can use the extra money to start a foundation to help others transitioning from cults, in a more practical way.
- Notice we reach financial independence at 40 with the mortgage, BUT if we sold the house at the 35 year mark we would also have enough saved (~900k) to technically retire early. Our expenses without the mortgage would be 39k adjusted for inflation, so it would be pushing it. I’m 100% positive I won’t want to do this anyway for the reasons above.
|Net Worth w/ Mortgage Liability||Expenses w/ Mortgage||4% Rule||Age||Year|
|$ (303,459)||$ 70,000||n/a||31||2017|
|$ (139,939)||$ 70,875||n/a||32||2018|
|$ 123,593||$ 71,772||$ 4,944||33||2019|
|$ 372,443||$ 72,691||$ 14,898||34||2020|
|$ 634,308||$ 73,633||$ 25,372||35||2021|
|$ 910,197||$ 74,599||$ 36,408||36||2022|
|$ 1,200,942||$ 75,589||$ 48,038||37||2023|
|$ 1,507,563||$ 76,604||$ 60,303||38||2024|
|$ 1,831,150||$ 77,644||$ 73,246||39||2025|
|$ 2,172,866||$ 78,710||$ 86,915||40||2026|
|$ 2,533,957||$ 79,803||$ 101,358||41||2027|
|$ 2,915,754||$ 80,923||$ 116,630||42||2028|
|$ 3,319,683||$ 82,071||$ 132,787||43||2029|
|$ 3,747,262||$ 83,248||$ 149,890||44||2030|
|$ 4,192,527||$ 84,454||$ 167,701||45||2031|
Waiting to retire till we hit 4 million is probably overdoing it JUST a tad ;o)
If our expenses are around 50k a year by 2032 (after paying off the mortgage and selling the house), we’d have 82 times our annual expenses saved up, instead of just 25.
Yes, I realize how overcautious it is to wait that long, but I have vivid memories of living hand to mouth growing up! I never want to go back to that ever again, especially not as I get older.
Right now, I only see the upside to being extremely conservative before quitting work, because I know in my bones that life is unpredictable and messy. I don’t see how being over prepared before retiring can be a bad thing.
MAYBE I’ll throw all caution to the wind, be wild and daring and decide to retire at 40. At that point, if we sold the house, we’d have ~2.3 million. Adjusting for inflation, our expenses would be ~45k. We’d have 51 times our annual expenses saved up, instead of just 25.
Again, I’m not sure that’s likely to happen. I expect to still be providing some level of support to family, and I want to be able to financially help people transitioning from cults, like the one I grew up in.
Ideally, we could allocate 1-1.5 million to starting a foundation, and if we’re careful, we could use the passive income generated (40-60k) to sponsor individuals (with a focus on teenagers and young adults) transitioning alone from a high-risk, cult environment for a period of 12-18 months, while they get on their feet.
The foundation would be dedicated to my older brother, who died shortly after my 14th birthday. He was unsuccessful in trying to start a new life on his own outside of the COG cult that we grew up in, with no support.
By the way, the husband is fully on board with the idea of using a portion of our retirement savings to start a foundation. He actually loves the idea – he’s a good man :o)
So there’s the very basic, back of the napkin overview of where we hope our net worth will be in 14 years.
On a side note, here’s what I’ll be doing in the 1st month of retirement! Looking forward to aging rapidly under a tropical sun, while sipping on a frozen drink or two ;o)
What age are you planning to reach financial independence and/or retire at, and what will your ‘enough’ amount be?
It’s okay if you don’t want to share the dollar amount, but interested to hear your plans!