When will you retire? Or more precisely, when will you know you can retire by? How will you get there? I ask myself these questions constantly. More so when I’m stressed and exhausted dealing with gazillion tasks from my corporate gig.
The American Dream always says, “Max out your 401k” or “Save 15% of your income”. Then you will be ok, just like everybody else. Is it really?
According to my calculator, this is what the outcome looks like if you just do exactly that.
I’m an optimistic realist. If you ask yourself, at what age do you think someone starts saving $18,500 per year? 22? 25? 35?
Using the 15% saving rate per year, this translate to an annual income of $120k – $125k if you save it through 401k. Even more if you follow the teaching of save 15% of your take home pay (after tax). How many 20-something year old already paid off all debts (e.g. student loans) and start saving with this rate (or more)? If you are, kudos to you, you’re above statistics! CNBC runs an article that says 61% of young millennials have less than $1,000 in their saving account. This is not a pretty picture.
Let’s say a 30-year old starts maxing out 401k for 21 years with 8% compounding interest rate. He or she will be a millionaire at age 51. While $1M is a lot of money, if that person decides to retire then, using the 4% rule, that translates to $40k / year of the so-called safe withdrawal rate. I don’t know about you, but $40k / year won’t provide a very comfortable living for a family here in Seattle. It’s doable, but tight (housing cost is skyrocketing right now). This limits the place you can retire comfortably (sure, you can always retire comfortably in Thailand with this kind of money). And this assumes the investment growth (at the time of retirement) covers both expenses and inflation.
But of course America expects everyone to work until age 60, otherwise why would the 401k no-penalty withdrawal starts at age 59.5? Extending the working years for another 9 years, this takes the person to ~$2.2M, which is a comfortable position.
I guess this is what American Dream is. I don’t want this dream. I want to wake up and chase something else.
Wake up and start walking
When I was in my late 20’s to early 30’s, I was still riddled with debts. All kinds of debts: investment debts, business debts, credit cards, car loans. I ran aimlessly, refusing to conform to the American dream. I tried everything: opened a retail shop, botched real estate deal, joined multi-level-marketing, selling life insurance, you name it. All of these while still working my full time Software Engineer job. You see, running wild with no direction is dangerous.
At one point, I gave up and went back to chasing American dream. The one good thing here, I started to pay off my debts, started contributing to my 401k. I started to listen to Dave Ramsey (he teaches good fundamentals, getting out of debts). Fast forward a couple years later, I was finally debt free, with the exceptions of mortgages and HELOCs.
I had my Aha moment when I was in Big Island, Hawaii. We were expecting our first baby. I started reflecting about my life again, if I want to raise my children in the American dream. Long story short, I refused the American dream again. I was waking up for the second time, but this time, I was aimed with resources, information, and life experience that I didn’t have before. Right after we went back from our vacation, we made some drastic lifestyle changes. The fancy car was gone, the bad real estate investment was sold, and the remaining HELOC debt was paid off.
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“At the moment of commitment the entire universe conspires to assist you.” (Johann Wolfgang von Goethe)
I believe when you have faith and fully commit to something, good things start to come your way, one after another. I got a significant promotion that year, which included a generous bonus/stock compensation. This jump started our saving and stirred us to the right direction.
Crunching our updated numbers again, if we are discipline and follow through with the plan, we can reach financial independence much sooner than age 60. Inspired by the quote, I’m going to commit to retire by 2025. This will require us to save over 50% of our take home income, which translates to more delayed gratifications in our life.
But 7 years is not a marathon. The sacrifices worth it! This will allow us to spend more time with each other as a family as well as travel, visit our extended family all over the world, without worrying about work schedule. This means, we can choose to travel during off peak season, which allows us to travel more on the same budget.
And this had been done before. A lot of inspiring on FIRE folks had reached this destination. There is an unofficial guidance of save at least 50% of your income, life way beyond your mean, and build your equity fast. If there’s a whole community of FI, this is not an impossible challenge.
Retirement is not an age. It is still a number, but it starts with a dollar sign. It is all about how much passive income can your equity generates, without touching/jeopardizing the principal. There are many ways to accomplish this. What I hope to accomplish with this website is to take you on our journey to Financial Freedom. I also write about my experience, so you can learn from it. At least it gives you some information that you can judge yourself if it is applicable to your situation. I hope to provide you with useful resources, like how to generate side income, what product to use, inspirational articles, lifehacks, and travel.
So start crunching your number. Plan your Retire By awakening. Use our free calculator to help you plan ahead. Read books like The Simple Path to Wealth and Meet the Frugalwoods. Fill in the blank of “I want to retire by _______”.
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