Invest It Wisely

Maximizing your EV in life

Our Bid for Financial Freedom by Age 50

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The following is a staff post by Crystal Stemberger.

Financial freedom has been my ultimate goal since I started college in 2001. That was when I thought I’d be working in a white collar cubicle for 30-35 years, and be able to fall back on a nice pension when I decided to retire. By the time I graduated in 2005, pensions were a dying breed and I was going to have to rely mainly on a 401k. By 2010, thinking you had any control over when you retired in my company was hilarious.

Then I quit altogether in July 2011 to tackle self-employment head on. My husband then quit in January 2012 to help me out at home. So I am proof that plans change.

English: Pot of Gold Well we didn't find it - ...

(Photo credit: Wikipedia)

Where We Are Now

I kept my 401k since I was fully vested and the super low fees are fantastic. And we have my husband’s tiny pension account from teaching on standby. I also keep contributing to the Roth IRA that I opened in 2008 when I learned that they exist. My husband opened a Roth IRA in 2010 and we’ve been fully contributing to that one too. But that is pretty much where we came to a screeching halt.

When I started making more from my online business than we ever expected, I started using the extra to pay down our current mortgage. It’s at about $25,000 as of August 2012. But in April 2012, instead of using a large sum of saved money to pay off the mortgage as we planned, we found our dream home and started having it built down the road. So everything has been on pause since April as our mortgage broker requested. When the expensive closing is over in September 2012, we will have some decisions to make about our future.

Where We Will Be By October

We will have two mortgages starting in mid-September 2012. That annoys me. I think our first priorities will be to save a ton of cash over the end of 2012 so that we can build back up our emergency fund and pay off the current mortgage. It’s only at 4.5%, but it still frustrates me. Plus, any kind of debt is extra heavy on our shoulders since we became self-employed. The mortgages are the only debt we will have, so they have got to die.

The bright side of owning two homes is that we will be using our current one as a rental. That extra money each month will fully cover the current mortgage and property taxes, and it will even help a bit with our new mortgage. Once we own our current home free and clear, the rent will be enough to cover all of the property taxes of the first home and the new mortgage too. We’ll just have to cover the new property taxes.

Another nice thing about our current situation is that we rent out a spare bedroom of our own home to a pair of our friends. They are currently planning on staying for another year or more while they finish college. That monthly extra will cover most of the new property taxes, so we will only need a few hundred dollars a month from our own income for housing. We can then use extra income to pay off the new house within 5-10 years too (it will take us 6 years to pay off our current house).

After that, we will be opening a self-employment IRA or 401k. We looked into them late last year, but obviously some stuff popped up. I will need to look at the details again to figure out which one is right for us.

Our New Plan for Financial Freedom

I think a combo of our Roth IRA’s, a SEP 401k, and rental income will cover our retirement needs. If being a landlord doesn’t work well for us, we’ll sell our first house and invest the proceeds. We are aiming to have $3 million or more saved by age 50 so that we can live comfortably off the interest. This means that I will need to check in on all of our accounts regularly with an amortization calculator to make sure we are sticking to our plan.

What we can earn with our money is definitely going to determine how fast it grows, so that will be matter of hoping for the best dividends and interest rates as we go. My husband and I have both learned that there are just some things that you can’t control. But it is nice to have a plan anyway.

Are you aiming for financial freedom at some point? What are your plans?

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Comments

  2. You may want to acquire more rental income because roughly 20 years may not be enough to accumulate the kind of nest egg you want. Good luck! Financial independence is definitely worth it.

  3. My daughter will be finished in her schooling by the time I reach 45 so I am betting for my personal financial freedom at age 43-45.

  4. 3 million by 50 is a huge goal but I think you two are up for the challenge. Better get some more thing cooking though. I need to add being a landlord and maybe trying to flip some home in there as well. I would like to be able to semi-retire by 50. That and at least have our home paid for as that is the biggest expense besides savings.

    • I think it will be a combo of getting a few more things in the works and paying off our two homes. The rent house should be free and clear in 2013 and we are aiming to have the new house paid off by 2022. That will leave us the last 10 years before 50 to save like crazy people.

  5. Hi Crystal,

    I also think that you two are up for the challenge! That is a lofty goal, but maybe not that lofty as a million ain’t what it used to be. 😉

    I haven’t been investing much since I was all-in on my business for much of the year and only recently started paying myself a salary, but should I continue to bust my ass I think I’ll have some funds to invest next year and perhaps even expand a little bit!

    • Yeah, this has not been a good year for us and investing in stocks or retirement. Everyone keeps pointing out that we invested in real estate, but I don’t see it quite like that yet. I see the rental house as an investment now and I see renting out spare bedrooms as a way of getting a return through real estate, but the house we live in itself isn’t really an investment to me unless we are willing to sell it, and we aren’t. So I guess what we did is turn our old house into a retirement fund of sorts…

    • We took out a 15 year loan for $92,000 in 2007 and it will be paid off next year. When I started earning money online, we pretty much threw all of that extra towards the mortgage – that helped a lot.

  7. I hate to be the one to share this, but at 50 your are still going to need your investments in something that keeps up with inflation and also grows. It will probably be hard to get enough interest and dividends off 3 million to ‘live comfortably’ – trust me, I know.

    BUT, the two of you will probably keep coming up with new ways to generate income anyway.

    • We are thinking that our retirement funds will be enough to live off of passively after that age, so between 50 and that age, we’ll live off of our cash reserves and rental income most likely.

  8. I wish I had all this information when I was younger. Now I’m 38 and in debt to the tune of about $75,000. BUT I’m working on multiple streams of income right now to get me out of debt as quick as I can. I have no hopes of retiring early but just that I can do so at some point and show my kids the right path so they don’t go through what I’m going through.

    Good for you guys!

    • I think you will work yourself out of debt and into a retirement. It just takes the multiple income streams you mentioned, staying healthy, and growing those streams as you can. Good luck! And thank you for teaching your kids too!

  9. I was hoping for that by the age of 25. As they say, aim high. My plans are not yet definite, since I know that the economy can change in a snap (just like in 2008). But as of now, my plan is to take advantage of technology and use it as a means of income. I hope it goes well.

  10. I think the fact that you guys have a plan in place in the biggest step. A lot of people don’t and this hurts them down the road. We are hoping for financial freedom in our early 50’s as well. We will see how things go.

  11. We also want to be debt-free by 50 at the latest. That gives us another 18 years to meet our goal. Added to that, though, we want to help our kids if they decide to go to college since we didn’t have that luxury. So, we have a 529V-rack plan that we contribute to regularly..

  12. Depending on your lifestyle, you can achieve FI even with a million dollar in nest egg. Do you think that you will need $180,000 a year(6% return on your desired wealth level(3 mil)) to live comfortably?

    • I don’t think we are guaranteed to get 6% returns. We live on about $45,000 a year, and I have no idea what the equivalent of that will be in 30 years.

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