Here is a rough framework for how I plan on funding my early retirement.
In December I posted my 2015 goals and two of them are to create a hybrid retirement strategy and another (exponentially more difficult) is to start using the HTML button and improve my blogging skills.
As you may have noticed, I have been working on both of these goals.
I must admit I have even impressed myself with this chart shown above. I successfully jumped back and forth between the Compose and HTML buttons. I then proceeded to make surgical-like adjustements to both widths and heights within the string of code.
Then I successful managed to insert a (br /)
Who says you can't teach an old dog new tricks?
Hell I may just start hanging out in the HTML during all my posts. It's kind of cool in there....NOT!!
Ok so maybe I won't be getting a job as a programmer at Google anytime soon, but slow and I mean REALLY slow and steady progress is fine with me.
Anyway here are some of the assumptions that I have made to reach FI at age 47.
- First and most difficult is that I maintain a very high paying job during the next four years.
- Raise my yearly dividend by $2500 a year for the next for years. (With a cleaner portfolio)
- Accumulate $320,000 in savings outside my taxable portfolio. (This will be a MFer)
- I assumed an average of 2.5% interest rate over time on my savings. If it is less, that OK too
- Dividend growth rate of 3% (Conservative because I have bonds also)
- Begin accessing 401k using equal installment payments (72-t) at age 50.
- Delay social security until age 70 (if it still exists that is)
- I have also a assumed a 2% increase in SS. It certainly could be more or less.
- While I will only have 25 years in the work force I will have maxed the payroll tax contributions in half of those years so I feel comfortable at $1500/month at age 70.
Don't worry about the mule being blind, just load the wagon.
There are so many moving parts within this plan that it is most certainly will be altered a bit each year. In fact, I feel like Christopher Columbus when he first started his journey from Spain to America. Should he pack sandles and sun tan lotion or a heavy wool coat. I think that I have done a good job packing for all weather conditions with this model.
The one thing I do know is that I am heading west and if I have sunny weather and a nice strong breeze behind my sails that would be wonderful. If the waves are rocky and I have to use the oars during the entire trip, then fair enough. I am certainly no stranger to putting oars in the water and struggling against fierce opposition to reach my goals. Hell sometimes a few people have to be thrown overboard to lighten the vessel (I am referring to future expenses here, not real people).
Now that I have my FI voyage mapped out, I am excited and eager to continue on my journey.
Where are the life rafts on the cruise ship?
If you have ever been on a cruise ship, you know that there is an emergency training exercise which requires the passengers to head towards their designated life boats in the event of an emergency. When I get on the cruise ship I am all over this process. While my wife is trying to nap or worse find ways to spend money on things like massages, overpriced excursions, and on board souvenirs, etc. I am planning worst case scenarios knowing full well they won't ever happen. That's why she is probably napping? Oh well, what can I say....I am a pragmatist.
Hope for the best and plan for the worst is my motto.
Even the best laid plans don't always go according to plans. Like I mentioned above there are a lot of unknowns that can and most likely change things over the coming years. But then again, life is full of unknown pitfalls and opportunities and I will certainly embrace either as they present themselves to me.
The biggest potential problem would be a rapid job loss. This could result from dissatisfaction with my job performance, the company being sold, a dramatic change in economic conditions, etc. These are all real possibilites and would cause me to quickly change course with my FI plans. Health conditions are certainly another factor. I could also simply choose to not continue with a 6 day a week, 10-12 hour daily schedule. In fact this is probably more likely than the first set of problems I mentioned.
Other jobs and side hustles could fill the void that would be created in the "Cash Withdrawal" column. There are a lot of opportunities to bridge the divide between income and expenses and I am not overly worried about this problem.
Living like a third world refugee is absolutely not in my FI plans
I will NOT retire eating Ramen noodles, canceling my cable, keeping the heater at 60 in the winter, living without AC in the summer, spending hours cutting coupons, playing board games at home for entertainment, wearing 30 year old suits, mending socks with holes in them, etc.....but I would without a doubt and with zero hesitation do exactly these things which I would HATE and much more dramatic things if necessary.....ALL HELL would have to break loose though.
Enough with the gloom and doom talk. FI is awesome concept, but living on $1500 a month for the next 40 years is not what I considering living the American Dream. It wasn't 20 years ago when I was 23 years old starting out in life, it isn't at 43, and it damn sure won't be when I am 63.
And yes I realize that working 60-70 hours a week is equally shitty and I will not continue down the fucked up path much longer. I just need to find a healthy balance between these two extremes
If I have offended anyone, it was not my intention. I do realize that we all have different wants and needs and that some of my career decisions seem without a doubt seem equally idiotic.
I just hate seeing potential wasted as it can result in regrets later on in life.
Isn't this a dividend FI blog???
As a side note, I truly would have liked to create a dividend only retirement plan, however I just don't have the time to build that large of a portfolio and I believe that it would be too inefficient for me.
Waiting another 10 years so I can have a $1,200,000 portfolio creating $40,000 a year sounds great in theory but is not practical in my view. I know I know....I may be forced to turn in my Dividend Communtiy Member badge. I really like it though.
Dividends will still be large part of my overall strategy, although I just don't see the benefit in having a 1.2 million dollar portfolio at 53, a 2.5 million dollar portolio at 63, and 5 million at age 73. This would be overkill in my opinion and a lot of the capital would end up unused or underused.
I also like the idea of my retirement airliner have four separate and independent engines rather than one engine that could malfunction or worse just stop. The cash withdrawal and 401k withdrawal components provide the shock absorbers that hopefully will allow me to sleep well each night.
Also the idea of having dividends, cash, and a small withdrawal program from my 401k seems to be a safe, balanced approach that will give me freedom sooner rather than later.
At this point I am open to all POSITVE FEEDBACK, suggestions, comments, questions, compliments, complaints, hostile discourse, and most importantly encouraging words.......and did I mention POSITIVE FEEDBACK?
I just noticed that I show $10k a year taken out of my 401k after the age of 70. It will obviously be much higher than that as my current balance is $244k and the IRS requires a withdrawal per year based on life expectency. I obviously don't know what the balance will be 27 years from now or what the laws will be, but I should definitely increase that yearly number.
Thanks to a reader's comment I was informed that I cannot start withdrawing money from my 401k penalty free at age 50. Apparently age 50 is for IRAs and 401ks distributions have to begin at age 55. Why is there a difference between the two. I don't know and it seems pretty stupid to me. Anyway I have changed my 72t distributions to age 55 to reflect this change. Hopefully I don't even need to use this additional income as age 55 as I hate dealing with anything related to additional tax confusion.