Personal Retirement Funds

[psysicx]

So PCS did someone help you put your money into the right accounts to make such a return on your investment?

 

[PC800]

!

...would you mind sharing what goal you set that allowed you to feel confident in retiring at 45?

Not at all. To understand how we did it, you need to understand only one thing:

Contrary to popular opinion, there is such a thing as "enough" money-- you just need to decide how much is enough for you.

Most people automatically expand their lifestyle to match their income as it grows. In the lower income levels we did, too, or course-- but beyond a certain point, it's more show than go. Who really needs a $1,000,000 house? Not us-- the money we saved by not buying that house (and paying interest on that mortgage), we're spending now.

As far as the mechanics of it went, it was actually pretty simple: I picked an annual income number (I can't remember what it was initially, this was almost 30 years ago) that I felt would be a comfortable amount to live on in retirement-- assuming I had absolutely no debt whatsoever at the time I retired, and that I also had a substantial nest egg (at least five times the annual income number) to cover large purchases and unforeseen contingencies. Each year I reevaluated and, as inflation took it's toll, I increased the numbers accordingly.

It's an interesting exercise if you've never done it-- if your house, cars, etc., were all paid for, and you didn't have any work expenses, Social Security or Medicare taxes, college or retirement to save for, etc., how much annual income would you need (in this year's dollars) to truthfully be able to say to yourself, "I'm content"? Forget the "rule of thumb" percentage stuff-- pick a number. Ours was only about 1/3 of our previous combined income.

With that number in mind, our initial goal was to have the necessary assets to enable me to retire at 48. But, the stock market was going well (even for a conservative investor-- I had nothing but Index funds), and I found that, between the "early out" clause of my traditional pension and the plethora of IRA's, Roth IRA's, and 401k's that we'd contributed to over the years (we always maxed out every opportunity) we had accumulated what we needed when I was 45: enough to assure an annuity (with cost of living protection and a survivor benefit) that exceeded our annual income goal, and a comfortable nest egg.

The only major change in our lifestyle due to financial realities is that I don't own my own airplane anymore-- I rent or borrow. I owned an airplane nearly all my working life, but I considered it an extravagance then, and it would be even more so now, since we do most of our traveling in a motorhome. And, we're not totally debt-free as planned-- as mentioned earlier in the thread, I took out a small mortgage at 4.875%, rather than cash in CD's paying substantially more-- but we could pay that off at any time. I did dip into the nest egg for the first time recently, when I paid cash for a new Mini Cooper convertible, but our net worth is still substantially higher than it was when we retired.

While it worked out for us, it won't for most people, because they don't share any or all of the following factors:

1. We were both well compensated professionals, and we were DINKS-- double income, no kids.
2. We've only been married to each other and intend to keep it that way.
3. We didn't start out with any substantial debt-- I graduated college debt-free, and paid for my wife's education as she went.
4. We're by no means frugal, but we're cost conscious. We pay for almost everything with credit cards, but only to get the cash-back rebates--over $600 so far this year. Every card is paid off in full each month-- we've never paid a penny of credit card interest.

For anybody that can do it, though, it's highly recommended-- the luxury of every minute, of every day, being yours to use as you see fit (at an age when you can still enjoy it) cannot be over-rated!

 

[ms6073]

I still want to see what MS6073 has to say before commenting on your post. If you want to take it to PM's, shoot me one and we can continue the discussion.

Sorry - I planned on building a new computer for the house over the holidays and migrating from the W2K to a WinXP Pro box is taking a lot more time than anticipated.

Not time for an in depth answer but I might go either way but I would much rather pay myself than the bank over the long term. Paying cash would give us the ability to dedicate much more towards investing and retirement without the worries of debt load from car and house notes should the economy take a nose dive and one or both are looking for work. Is that the correct answer - I really don't care as that is how we opt to manage our finances and it has worked pretty well for us.

 

[Swamp Fox]

Thanks for the thoughtful reply. It sounds like we have a similar outlook - I just haven't decided it is "enough" yet.

!

2. We've only been married to each other and intend to keep it that way.

4. We're by no means frugal, but we're cost conscious.
quote]

Traits number 2 & 4 are VERY important factors! I think a lot of folks would be a little more circumspect in their routine expenditures if they considered HOW LONG they need to work to pay for an item with AFTER TAX dollars. It might curb a lot of impulse spending.

PC800, you certainly have what they call the "millionaire mind". I hope you enjoy a LONG retirement.

 

[BluDevAv8r]

Not time for an in depth answer but I might go either way but I would much rather pay myself than the bank over the long term. Paying cash would give us the ability to dedicate much more towards investing and retirement without the worries of debt load from car and house notes should the economy take a nose dive and one or both are looking for work. Is that the correct answer - I really don't care as that is how we opt to manage our finances and it has worked pretty well for us.

Judging from your answer you are definitely more risk averse and would prefer to probably put your money in safer investments generally speaking. Paying for that $100,000 in cash is great...and fine...with 1 obvious caveat (that you did note)...you must take the money that would otherwise have been used for the mortgage payment and use it for investments in appreciating (hopefully) assets and not simply blowing it on a new BMW, etc. So we would save that $500 per month that we normally would make on a mortgage and put it in the market perhaps. So we would have that money as well as the property appreciation.

Or we could put 20% down and finance the remaining 80%, leaving us with $80,000. Then we could buy 4 more $100,000 properties and put 20% down on each and then get renters to cover our mortgage on those other properties, thus leaving us with $500,000 of real estate holdings using only $100,000 of cash which we would spend entirely on a $100,000 property. (Of course, we could also put $20k down and invest the remaining $80k in the market...but I still think buying 4 more properties is smarter in the long run).

I just genuinely believe that we should embrace the power of leverage (and other people's money) and use it to our advantage. Which option above do you think would yield the highest net worth after 30 years?

I want to go deeper into this but I think even this short post illustrates my point. And yes, I know it is a simplistic view of all of this and that there are many "what if's" that could and should be taken into consideration, but overall, the use of OPM is a good thing...as is "good debt." Buying appreciating assets with "good debt" (read: cheap money) is critical to wealth building in my view.

-Neal

 

[kingairyahoo]

hahahahahahaha...a 100,000 property....thats a good one (much less 5 of 'em)

sorry...i couldnt resist, but in this side of the country, 100,000 properties dont exist

 

[smellthejeta]

hahahahahahaha...a 100,000 property....thats a good one (much less 5 of 'em)

sorry...i couldnt resist, but in this side of the country, 100,000 properties dont exist

Yeah they do... buys you a timeshare a timeshare at a bus stop shelter.

 

[BluDevAv8r]

hahahahahahaha...a 100,000 property....thats a good one (much less 5 of 'em)

sorry...i couldnt resist, but in this side of the country, 100,000 properties dont exist

I'm sure you were kidding...but I used that number for easy math for the purposes of an example. But yea, you can still find $100,000 properties - just not in SFO or NYC.

-Neal

 

[BenderGonzales]

I have 4 accounts (Roth IRAs, beneficiary IRA, investment account) with a large brokerage where a close friend is our financial advisor. He has told me that he's going into business for himself and asked that we give him our business.

This makes me a little nervous because even though our investments aren't insured, the nationally known brokerage has been around for a long-time.

What are the risks and, if I don't choose to give him my business, how do I salvage our friendship?

 

[pilotyip]

Giving a friend money is one of the best ways to end a friendship. If you want to try, give him an amount you can afford to loose and see what he does with it.