How much money does it take to retire by 40? That’s the questions, isn’t it?
For years, I have been obsessed with the idea of retiring super young, but disregarded the idea because it seemed like the massive amount of money that I would need to acquire was beyond reach. Anyone ever felt like that?
But, when I sat down and actually figured out how much money it would take to retire by 40, to my surprise it wasn’t as bad as I thought! In figuring it out, I used a couple of assumptions:
My investments will generate a 7% return each year (excluding passive income).
I will live off of 4% of my investments each year (excluding passive income).
BTW, passive income is income from sources such as rental houses, etc….Not a job, but sources of income.
If I assume that I am returning 7% each year, but am only living on 4%, that leaves me a 3% “buffer” of sorts to either cushion me against inflation, a year with less returns, or to grow my pot of money :-) See how that works?
Next question – How much money do I need to live on per year? My Current Situation post detailed our current monthly expenses. Basically, with the debt we currently have, our monthly expenses are $3,496.33, or $41,955.96.
However, if we were to pay off our cars ($34,487.96), credit cards ($2,481.57), the personal loan ($11,304) and Student Loans ($15,400), our monthly expenses would be $2,064.33 per month, or $24,771.96 per year!!!! That’s a crazy big difference, right?
$24,771.96 is 4% of $619,299.00
Most people think that you need millions and millions of dollars to retire, but obviously that is not the case! We are paying off debt to reduce the amount of money that we need to retire, but even if we kept our current debt, we would still only need $1,048.890.00 – just over a million dollars?
When I saw that number, I breathed a sigh of relief! We can do that! Yes, it is a big goal, but it is much more doable than several million dollars!
With that being said, The Big Guy and I need more than just $619,299 to retire. We have to pay off our current debt, which totals $63,673.53. Add that in and we have a grand total of $682,972.53.
Can it be done? That’s what you are thinking, right? Check back on Monday for my plan :-)
Think about your own situation. Are these numbers close to where you are at? Does my total seem doable, or does it seem just as unattainable as the million dollar total that “the experts” give?
The master plan, if you will:
Step 1b: Cut our expenses wherever we can to help the debt payoff process, and to be able to live on less once our debt is paid off.
Step 2: Move. Either sell our house for a tidy little profit, or rent it out.
Step 3: Continue to invest $2K per month (freed up because we are debt free) plus all passive income for 13 years.
Now, this is a very simplified plan, but according to my math, we will have more than $650,000 in the F*&^ You Money Pot to allow us to retire!
Additionally, the plan is to rent out our current house in 5 years, and to develop 2-3 more rental properties to generate some passive income over and above the income from the F*&^ You Money Pot.
What do you think? Doable? Can you find flaws in my logic or math? I would love to hear your thoughts!