If you want to retire by the time you’re 55 years old, don’t have kids.
If we didn’t have a child, I could retire right now and blog all day for fun. For real. Believe me, I love my son. I could spend all day giving him hugs and kisses, but children are financially draining! Any working professional who doesn’t have children or parental care on the horizon should be well on their way to retirement. No excuses.
Despite being tied down by an energetic toddler who woke up at 5:45am this morning ready to PLAY, I’m on the path to retire at 55 years old. Here’s my strategy.
Max Out Retirement Savings
I have made the maximum contribution to my employer 401k since I started working full-time post-college at the age of 22. I wasn’t making much, but I knew it was important. The trade-off back then was roommates, top ramen, and generic medication, but it paid off. I’ve stashed away $500k with a 1-year personal rate of return of 16% and a 5-year of 11%.
If I left my employer and put that money into an IRA with way more investment options, I could be making even more. One colleague said that’s why he jumped ship. He can now retire earlier than if he had stayed because he’s maximizing his retirement returns.
Another tactic is investing in the stock market, also starting early. I remember telling myself that when I got my first paycheck, I was going to try my hand in the market. I had no fear back then! I didn’t know anything about investing, but I thought, what do I have to lose? As long as I monitor my portfolio, I’m golden.
Yes I’ve made some really bad investments and lost money, but I’ve always bounced back. 1-year personal rate of return of 46% and a 5-year of 20%. Check out those returns!
I was also strategic when it came to buying property. I didn’t want a single family home. I wanted a duplex so that we could live in one unit and have renters in the other unit foot the mortgage.
I read somewhere that one formula for retirement is commanding $51k/year in investment income. That’s because the average American needs $51k/year to retire.
Always Be Negotiating
I negotiate the shit out of everything. I scrutinize my credit card statements as if my life depended on it.
Here’s a real-life example that went down today. I called Geico life insurance and got the following quote from Pacific Life: $750k for 15 years at $32/month. That’s half of what I currently pay with AIG and they’re only covering me for $700k for the next 12 years. Send over the medical examiner, I’m making the switch!
I try to ask for a raise whenever possible, especially if I feel it’s deserved and in line with the market. If a 15 minute conversation could result in an extra $5-10k, would you do it? Of course. So do it. You have to ask. Sometimes plead.
I’m also learning that when it comes to pricing, price high. If you’re a contractor, let’s say a photographer, and you’re trying to decide whether to charge clients $100 or $200, always charge the higher price. Let me repeat: always charge the higher price! There is something subconscious about higher pricing being better value. Don’t be left out.
Hire an Expert
I have a financial advisor (free). Every year, she runs my finances through her process and gives me the low-down.
- You are doing a great job saving towards retirement.
- If you continue to max out retirement savings and you supplement that with saving $1500/month total in a taxable account, you’ll be on track to retiring at 55.
- Planning is all about trade-offs and levers. If you wanted to retire earlier, it would mean increasing savings. If you wanted to spend more than $10k/month in retirement, it would also mean increasing savings or working longer.
Once I joked about retiring in the Philippines, which she could relate to since her husband is Filipino, and she said I could retire now if that were the case.
So if all else fails, you can all join me in my tropical ancestral land. Mabuhay!
Fearless Girl statue photo credit: Anthony Quintano