How we plan to retire before we’re 40.
This post is not only for keeping myself accountable, to look back and reflect in the future, but also to share with you how you can achieve your own dreams — with a plan.
First of all, who is ‘we’ and why are we retiring? We is just me and my wife in our mid-20s. And retirement does not mean that we quit our jobs and sit on our couches for the next 40 years of our lives. No — retirement just means that we are no longer trading time for money. We can still do what we love doing, which might be our jobs, or it could be working for a non-profit. That’s the beauty of retiring, it can be anything you want. You’re the one who controls what it means.
We have been very fortunate and lucky that we were able to work hard and be where we are today. Not many people are able to do what we are doing, even if they work their hardest. In many ways, we are lucky and privileged.
How do we know when we’ve done it?
The common term for this is your F.I.R.E. (Financial Independence Retire Early) number. This is a dollar amount you need to retire based on several factors such as your post-retirement income, expenses, tax brackets, and more. When your revenue-generating assets (investments) are worth this number, you’re there!
That’s our number, almost 2.5 MM dollars. That’s a big pill to swallow, I have never seen that much money in my entire life, but to reach our goal, that’s what we need. So how will we even save that much money before turning 40? Well, we aren’t. And neither are you. As you start saving, you need to invest almost all of that money in appreciating assets that generate you money every single year.
No, the house you live in is not an asset. It’s part of your net worth, but think bigger than your house! There are many more asset classes that you can invest in, other than real-estate, to generate at least 8% year over year on your principal.
How did I even calculate this number?
I’ve used this free handy website called engaging-data.com that can calculate your exact FIRE number based on the parameters you give. Let’s say you earn 100K from your job per year, and after taxes, that’s roughly $72,000.00, after expenses, you’re able to save half, so around thirty-six thousand dollars. And if you need $50K per year to live in retirement, then it will take you about 15 years to retire, which is the same as having 1.3MM in the bank.
This gives you a general idea on where you are, where you need to be, and how fast you’re going! For our numbers, we are planning to spend a bit higher than normal in our “retirement” — around $90,000 pre-tax. The reasoning for this is that our family over the next few years will grow, and so will our expenses.
We plan to have our parents live with us and provide for them, as they have provided for us during our childhood and education. We will also start a family of our own. More mouths to feed means greater expenses! Most people spend more before retirement, than after. But we will spend much more in our retirement time because of the unique situation.
How do you get at least 8% returns?
In order for you to not save 2.5MM yourself, you need to be saving and investing in appreciating assets, which there are plentiful to choose from in this digital life. Here are some types of assets that you can use to your advantage to build your wealth. The next few links are affiliate links which will give you a head start by gifting you $10 — $25 when you join, and I also get around the same bonus to refer you.
Stocks: I mainly use Wealthsimple to build my portfolio and buy ETFs. I like their interface because it makes it super simple to buy and hold stocks. The 2 main ETFs that I am buying at the moment are U.S. Total Stock Market (VUN/VTI), and U.S Dividend ETF (XHD). Do your own research before buying, but these are my choices! Open Wealthsimple account to buy ETFs.
Bonds: I don’t hold any, and you probably shouldn’t either! Do your own research about this one.
Cryptocurrencies: This is a bit more complicated, as crypto such as Bitcoin or Dogecoin, are currencies and don’t generate any revenue themselves. You can, however, get interest in holding these currencies with certain companies. Currently I am buying crypto from either Shakepay or Newton, and I use BlockFi to invest the money in a high-yeild savings account. Currently on BlockFi, you can get anywhere between 5% — 8% on certain coins if you hold them month over month. That’s a lot higher than any other savings account. But remember, these are not insured by the government, so make sure you are comfortable with that risk. All of these affiliate links will give you $10 — $25 for free when you deposit at least $100.00!
Savings Accounts: Currently I am using Wealthsimple Cash, mainly because of how easy it is to transfer and withdraw dollars, and you get 0.75% interest rate on your holdings. This is a great way to earn even on money that you have saved up for emergencies. Open Wealthsimple Cash account!
How does this timeline work?
Currently, I am 26 years old. So that leaves around 14 years left on the timeline to reach our goals. Here’s a rundown of what should happen in the next 14 years:
- Year 0 (today): Total Invested — $275,000.00
- Years 1–7: invest at least $5,500.00 per month
- Year 7: The total invested amount at this point is $1.2 MM dollars. Around $360K of that are pure returns (the 8% we talked about).
- Year 7: Buy a house
- Year 7–14: Slow down investing and let the compounding do its work.
You can see that we plan to heavily invest for the next 7 years, in order to get to the half way point as fast as possible. This is because every 7 years, the investments that we have should double. The keyword being should. This likely has some pitfalls because the bulk of our investments are in stock markets, which can be unpredictable at best.
Another surprising factor probably is that we are waiting 7 more years to buy a house of our own. This is because the houses have gained astronomical prices over the last few years. Our plan is not to wait for the prices to fall, but rather wait until we can truly afford the house. Renting is a much cheaper option for us right now because we pay absolutely nothing in: property taxes, maintenance, fixing broken things around the house. That’s a huge savings for us right now which will double in the next 7 years!
What can go wrong?
At year 14, we will probably be at surprise that our plan didn’t work at all. That’s just how life works: you set out a plan, and life happens. There’s no way we can predict everything, but what we can do is put out a plan and work towards it. If it doesn’t work, we can replan and strategize again. Here are some things that can go wrong with this plan:
- Over the next 7 years, the stock market does not return as much as 8%, and we are not at our half way mark. This is truly possible because recessions can last long and take as long as 3–4 years to recover.
- Our expenses increase or income decreases and we are not able to invest $5,500 every month. This is definitely possible, and under our control to an extent.
- Life
Life is why we have an emergency fund of at least $10,000.00 so we can pay for large expenses as they come without having to go into debt or sell our investments. Please let me know what you think about our plans! Anything else we should be incorporating into it to make it better, or share your own plans.
