Remember when I said we’re busier in retirement than when we were working? Well, this past weekend proved it. We were in Chicago demoing the non-profit app we built, and man oh man, literally every minute of the day was accounted for. From app demos to the launch party, to 7am author breakfasts, to fancy literary award dinners to late night parties, it was a wine-soaked, party-filled weekend that we’re still “recovering” from (champagne problems, right? LITERALLY.)
Needless to say, having neglected our inbox, we are just now digging ourselves out of the avalanche. But app launch or no app launch, Friday Reader Cases still need to be written, so without further ado, here’s an e-mail from one of our intrepid readers:
I’m an older millennial (age 36…I think we’re known as “cuspers”), married, two little kids. I’m an Army veteran and I currently work in medical sales. There are many things I like about my current job: the income, the flexibility, and the people. That being said, there are things that I don’t like about working for The Man, primarily the feeling of dread in a Sunday or at the end of a vacation knowing that I have to go back to work.
Why do I seek FI?:
I don’t want to be bound to a job with specific hours. I am not striving towards perpetual laziness but rather the freedom to use my time the way I see fit.
What will I do with my FI?:
This probably sounds crazy, but I want to design and fabricate hand-screened t-shirts for sale. I also want to “slow travel”, meaning I want to keep my home base but be able to travel overseas for 1-2 months at a time.
My financial stats:
1. Income from my job: Around $150,000/year before taxes; $85,000 base salary, the rest is variable comp (I’m in sales).
2. Additional income: Military pension, around $1275/month ($15,300/year…tax free!).
3. Monthly spending: $3500-$4000/month (includes mortgage).
4. Debt: Mortgage on residence, around $190,000 remaining, 3.785% interest rate. We pay off credit cards in full each month. Student loans paid off. No other debts.
5. House: Market value $340,000; $150,000 equity; monthly payment is $1675 (principle, taxes, insurance).
6. Fixed assets: House, 1 car which we own outright. I have a company car which I can use for personal use.
7. Retirement portfolio (401K & Roth IRA): $290,000. I now max out my 401K; (company matches 100% up to 3% and 50% for my contributions between 3%-5%. Guess where they do their 401K? Vanguard!)
8. Taxable portfolio: Currently around $100,000. On average months I anticipate adding $750/month to my taxable account. After quarterly bonuses I plan on adding $8,000-$12,000 in addition to normal monthly contribution.
9. Note: Wife stays home with the kids, no income.
So here’s my question…if I keep up this pace, how long ’til I reach FI?
Well, CC, at a first glance, your are definitely making major bank and your expenditures don’t look too bad either ($4000/month and you have kids?! So you didn’t have to sell a kidney to be able to afford them??! LIES, LIES I say!). So let’s see if we can make your T-shirt printing dreams come true!
As we always say on this blog, let’s MATH THIS SHIT UP!
|Current Gross Income:||$150,000/year|
|Additional Net Income:||$1275/month *12 = $15, 300/year|
|Spending:||$4000*12 = $48,000/year|
|Debt:||-$190,000 @ 3.785% interest rate|
|Investable Assets:||$290,000 + $100,000 = $390,000.|
Now, since CC didn’t mention where he lives, we’re going to estimate his after tax income (which also varies from year to year, since a big part of it is commission). He can feel free to adjust the numbers accordingly by putting it into a tax calculator. And to all the whiners who complain that I’m missing information so we should be having a back and forth e-mail fests with the reader: either do the work yourself, or shut the Hell up. It takes a tremendous amount of effort to write consistently, answer comments/emails, while volunteering for a non-profit and supporting an app, and it takes ZERO effort to write whiny comments on other people’s blogs, so unless you’re going to DO the work of running your own blog, no one gives a crap what you think.
*Phew* Rant over. Okay, now back to the numbers.
Assuming that he makes around $100,000 after taxes, he would have a total after tax income of $115,300 with the military pension.
If he continues to live in the house and pay off the mortgage, he’ll be able to put away around $67,300 per year (note this does not include any unexpected maintenance costs, property tax increases, or interest rate hikes). And since he also maxes out his 401K and his company matches up 100% up to 3% and 50% from 3-5%. Since his base salary is $85,000, they would match $2550/year (100% for the first 3%)+ $850 (50% for the remaining 3-5%)= $3400/year.
With expenses at $48,000/year, by the 4% rule, he’ll need $48,000 *25 = $1.2 Million to retire.
BUT, since he has a military pension of $15,300/year, that will only need the portfolio to generate $48,000 – $15,300 = $32,700/year. Which means he’ll only need $817,500 to retire.
So, if he were to put away $67,300 + $18,000/year (max 401K) + $3400/ year (company match) = $88,700/year into a portfolio with a conservative return of 6%, he would get be able to retire in…
|Year||Starting Balance||Annual Contribution||Return||Total|
…just 4 years!
Realistically, as he pays off the mortgage, the monthly payment of $1675 should go down, reducing his overall spending costs. That said, when owning property it’s always a good idea to have some monthly costs set aside for unexpected costs like maintenance and property tax increases. So he needs to account for those costs.
Also, since a 6% return is a conservative average return over the long-term, during the 4 years there could be fluctuations in the market that could either push out his retirement timeline or shorten it. So he needs to be aware of that and plan accordingly.
And if he wants to set aside some money for his kid(s)’ college tuition, that will also push out his retirement date. But again, the cost of tuition varies from family to family. If his kids decide to go to a State school like RootofGood or get into a co-op program to pay their own way through school like Wanderer and I did, then they would save him a butt load of money. So CC will need to decide what makes sense for his kids.
So, I’d say CC is doing pretty well for himself. He’s also proof that you can live a good life without breaking the bank even if you have kids.
What do you think? What advice do you have for CC?
Hi there. Thanks for stopping by. We use affiliate links to keep this site free, so if you believe in what we're trying to do here, consider supporting us by clicking! Thx ;)
Build a Portfolio Like Ours: Check out our FREE Investment Workshop!
Earn a 2.30%* everyday interest rate. No Everyday Banking Fees.: Open up an EQ Bank Savings Plus Account! (Canada only, excluding Quebec)
LIMITED TIME OFFER: Earn up to 4% cash-back (Canada): With Tangerine's Money-Back Mastercard!
Travel the World: We save $18K a year by using AirBnb. Click here to get $40 off your first booking!
Don't Pay FX fees: We used the Scotiabank Passport Visa Infinite card to eliminate foreign exchange fees around the world! Plus, we got 35k points in the first year, and free airport lounge access too! Click here to sign up!
Come see us from May 1-3, 2020 in St. Louis! Click here to buy tickets to the Financial Freedom Summit!
*Interest is calculated daily on the total closing balance and paid monthly. Rates are per annum and subject to change without notice.