Want To Retire In Your 30s ?
8 Lessons to Learn From Two Millennials Who Retired With $1 Million
When would you like to retire? 65? 50? Why wait that long? A California couple recently retired in their mid-30s with $1 million in the bank, according to Forbes magazine. True, that remarkable feat of personal finance would be nearly impossible for most of us because we have…………….lives. And Children. It would be incredibly difficult to pull off something like this with kids to raise. The couple had no Children. They earned good money as tech professionals and had already squirreled away $350,000 when they decided to resign from their jobs forever. They also had iron fiscal willpower! Still, there’s a lot to learn from these two millennials about the fundamentals of building a retirement nest egg.
1. Know Your Objective
When Travis was laid-off from an IT job in 2012 he discovered a new passion: the freedom that came with not working. He and Amanda decided to retire as soon as possible. They figured they needed $1 million to make that happen. The couple planned to live on 3-4% of their portfolio’s value every year and expected a 7% annual growth rate. How do you see your retirement? Will you travel the world? Start a small business? Own a beach house? Knowing what you want post-career is the first step toward making those dreams come true.
2. Get It Together
Organizing your finances allows you to know where you are and how to move ahead. Travis and Amanda gathered all their money-related accounts and did a thorough review of their assets and expenses. This lead to spending cuts and the (easy) decision to combine several Pension plans from former employers (I presume after consulting an Independent Financial Adviser!)
3. Savings First
The couple then saved as much as 65% of their (net) pay during the three years it took to amass $1 million. They lived in a low-rent and small house (a bargain by location standards) and aggressively cut costs by doing stuff like driving less and hanging the laundry out to dry in the free wind. Here’s a tip for boosting your savings rate: Pay yourself first. Have your savings automatically deducted from your pay, whether it goes into your company (or private) Pension or another retirement fund. You can’t spend what you never see.
4. Beware Of Fees And Taxes
Fees are the great return-killer, but only if not allied with adequate performance. You should review charges within the funds inside your Pension. No-one minds high charges if they produce high returns! Amanda and Travis put much of their retirement money in low-cost index-tracking funds. These paid off nicely, as the couple rode a “bull market” increase in the S&P 500 from 2012 until 2015 of around 60%. Had we been in a “bear market” like the one after the 2008 crash, their plans would have not worked without active fund management. When markets go down, you can’t just leave your funds in tracker funds, unless you want them to lose money.
5. Your Job Is Your Real Moneymaker
Easy to forget, your pay packet is the centerpiece of your investment plan. Anything you can do to increase your salary or add other income streams (a second job, for example), will dramatically advance your objectives. Much as he hated work, Travis returned to a “meerkat cubicle” purely to make the couple’s retirement dream come true. He switched jobs three times in three years to obtain salary increases. Amanda stuck it out in her job as a chemical engineer. At their earnings peak, the couple was making a combined $200,000 (easy for some, but not most).
6. Move And Save
It’s considerably easier to save when your cost of living is low. When Amanda and Travis retired, they left the extremely expensive area for a $270,000 house. The couple chose a mountain town because the cost of living is relatively low. They also believe their house will be easy to rent to tourists while the couple continues to globe-trot. Making that kind of move could reduce your living expenses, while potentially increasing your income. Together, that means more combined cash flow, which you can use to build your retirement savings and get closer to retiring early, but it may mean moving away from “civilization” (and all that goes with it……………!)
7. Simplify And Declutter
As they approached their retirement goal, Amanda and Travis sold much of the stuff in their two-story house. They headed into retirement with only what they used on a daily basis. Streamlining and downsizing your “stuff” means less to repair and replace, meaning lower costs for your out of pocket expenses in retirement.
8. Plan Your Retirement Spending
We tend to focus on saving when we discuss retirement planning. But you need to think carefully about your post-work spending if you want your nest-egg to see you through two or three decades. Travis and Amanda are very disciplined. They refuse to spend more than 4% of their portfolio’s current value per year. As a result, they sometimes have to cut spending when their portfolio value dips. They stuck to this rule even during their retirement dream driving trip from San Francisco to Costa Rica. They made that journey on the cheap, driving (and sleeping in) an old Toyota. In Costa Rica, they leased a house for $1,000 a month—equal to $30 a night. They ate at home and skipped the touristy stuff.
Travis and Amanda told Forbes they will never work again. But they left the door open to having Children. Their extreme example is inspiring. If these two thirty-somethings can save about $650,000 in three years, surely we can reach our retirement goals in 20 or 30 years. All it takes is a goal, a plan, and commitment. Especially commitment. But the “downside” might be having a “miserable time” and even losing all your friends? The conclusion must be to find the right balance, with the point being that we ALL need to save more…………
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