Basic Financial Plan to retire in 7 years
Me and my wife made up our minds that we want to leave corporate America and get out of the rat race in 7 years give or take. We are not exactly debt free but we have no credit card debt. We always pay our balance on our cards every month.
Following some of the guidelines like you have in this article we reviewed our finances and it is reasonable to think that we can save about $70k per year for the next 7 years if we simplify the way we live. Maybe could save a bit more but she does not want to live without heat and cable. I humor her because she makes five times what I make.
So...we will be about 47 years old in 7 years and have a separate 401k account which got creamed by the stock market crash but hopefully will provide all of our income from age 62 and on.
The plan is to turn the 70k a year x 7 years plus whatever we will get for selling our house and goods into enough cash to live on our RV from age 45 to 62. Drive all over the USA and then some...
Figure the RV is going to eat about 20k a year or so (more in some years when you need new tires, parts, repairs etc., hopefully less in others). I figure we need another $30,000 a year to live for food, medical, entertainment, and insurance if we can get it. I hope that isn't too low.
So we need a income of $50k. Since our tax rate will go from absurd to almost zero, I am thinking the best investment plan would be something that is somewhat tax defered. The two things that come to mind
are spiders (S&P500 index shares purchased like stocks SPY) and inflation indexed 30 year US I-bills. I think you can only purchase 10k a year per person in I-bills, so that would be 20k total for that and then the remainder 50k a year put into spiders. The I-bills do not pay out the interest until you cash them in, so tax deferred, and the spiders are sort of tax deferred since you will not realize any gain other than dividends until you sell them. This seems better than a mutual fund which might have to distribute gains several times a year.
Can we do it? I mean, assuming we manage to cut spending and actually save 70k a year, will the above strategy net us 50k a year from age 45 to 62? I guess aside from the I-bills, a lot would depend on the stock market recovering over the next 10 years. Although ideally it would wallow around at low levels for the first few years while we are dollar cost averaging into it. Any other saving or investment strategy that might be a better way to go?
Alternative strategy: win lottery, find rich uncle.
|LM says: Keith, that's an awesome plan. Very cool that you and your wife sat down to hash this out. |
I would suggest you look at ways to create some side business that interests you both that you can then continue in your retirement. So even if you meet your savings goals and your money grows like you predict you still have some income that still allows you to live the life you want during retirement.
Whether it is real estate properties, some internet based business, consulting opportunities, freelance work, etc. Just start now building something that you can keep going during retirement.