The Road So Far

So in the last blog we talked about how we have roughly $90,000 saved for retirement so far. In this blog we will talk about a little more about who we are, how we got that $90,000, and what our plan is moving forward.

 

So let’s start with who we are

 

Kristen is 30, has a BSN in nursing and is an RN who has spent most her career in emergency medicine. Rory is 33, has a BS in Criminal Justice, BS in Psychology, and a Master’s in Social Work. We own 50% of a business that focuses around working with young men develop into productive members of society, many of which have some difficulty in getting there by themselves (social work). We love the outdoors, we spend a lot of our time travelling the world and our own backyard via hiking, canoeing, and camping. We don’t have any children (yet, but may in the future). We have 2 dogs and a cat. We live in a house worth roughly $100,000. I’m sure in the future you will hear a lot more about us, but the point I wanted to make in your first impression of us is that we both are very normal people, living very normal lives. Kristen’s upbringing was middle class, and Rory’s could be described as impoverished. We have no large windfall of cash to help us along the way (except for a family loan to help us not have a mortgage), nor do we anticipate a large inheritance to count on. We must do it ourselves with our knowledge, skills, and abilities.

 

We never kept detailed records prior to starting this blog (January 2017) so we pieced together to the best of our recollection what 2015 and 2016 looked like for us in expenses and what we had for investments to help you understand where we were at, and help us log it before we forgot it. Let’s just put out what 2015 and 2016 looked like for us.

 

2015

Moved in together, consolidated resources and bills.

Bought an Engagement ring for ($11,890) August.

Took Trips to Dominica, St. Lucia (2 weeks) in May ($3000)

Trip in September (3 weeks) to Turkey to Hike the Lycian Way ($3000)

Kristen went 15 days to Iceland in March ($2000)

Kristen went to Puerto Rico for 8 days ($1500)

Contributed $5500 to Kristen’s IRA, Rory tried but the bank screwed him on the date. (Couldn’t get the payment to process until after Tax Day so it fell through)

 

2016

 

Kristen had $25,068.60 in his 403B 1/1/16

Kristen had $11,000 in her additional retirement account (roughly)

Rory had $643.84 in his 403B 1/1/16

 

Finished paying off Kristen’s truck

Trip to Jamaica (8 Days) to get Married ($6000) Wedding Dress was $125 and $200 for alterations. Rory’s outfit Pants cost $100.

Trip to Uganda, Rwanda, and Kenya for 4 weeks ($8000) including 11-day safari.

Paid off Rory’s student loans of $45,000

Rory sold his truck for $15,000

Rory sold his ATV for $3,000

Rory opened a 401K for his business August 2016

Rory and Kristen opened an Index Fund

Purchased a House with money from Kristen’s mom ($75,000 borrowed) and cash ($44,000)

Purchased and had a pool installed ($14,400) we paid $7,000 paid in cash and $7,400 put on 0%APR card.

 

Contributions:

Kristen’s 403B: $13,000

Kristen’s Roth IRA: $11,000 (Contributed max for 2015 and 2016 in 2016)

Joint Index Fund: $5,000

Rory’s 403B: $930.18

Rory’s 401K: $11,380.90

Rory’s Roth IRA: $5,500

Total Retirement Contributions for 2016: $46,811.08

 

Ending Balances:

Kristen’s 403B: $45,086.51

Joint Index Fund: $5200.41

Kristen’s Roth IRA: $11,244.21

Kristen’s Additional Retirement account: $11,879.08

Rory’s 403B: $1,574.02

Rory’s 401K: $11,380.90

Rory’s Roth IRA: $5,619.86

Ending Retirement Balances for 2016: $91,984.99

 

Projected Income for 2018: $206,000 (Before taxes)

 

That’s a lot of numbers and if you are early-on in your discovery of how to fund your early retirement is probably looking a lot like mumbo-jumbo like it did to us when we first started reading about this stuff, but we will do our best to explain what these funds are and how they work, but honestly others like financial planners will probably do a better job than us at that part. Let’s start by looking at what our goals are for the year, and we will explain in more detail WHY these are our goals later.

 

Our goals for this year are to

  • Track our finances so we eliminate waste and know what an average expense year looks like for us.
  • Max out our 401K/403B’s with $18,000 each
  • Max out our Roth IRA’s with $5,500 each
  • Research and potentially max out HSA accounts
  • Contribute $4,000/month ($48,000 a year) to our Index Fund
  • Contribute $2,000/month ($24,000 a year) to our House
  • Pay off Chase Card with $7,400 remaining for pool
  • Build a Deck, pergola, and fence for backyard.

 

 

So, there it is, our goals for the year include being SUPER aggressive on making money, using that money to pay off debt, and invest everything we can beyond our living expenses and debts into retirement accounts.

 

Lets break down each section so we can explain a little more about why we are doing these things.

 

  • Track our finances so we eliminate waste and know what an average expense year looks like for us.

 

One of the most important things you have to do in order to “early retire” is to know how much you need in order to do that. The only way you can know how much you need to early retire is to calculate how much money you will realistically spend each year to maintain the lifestyle that you wish to have at that time of your life. For us, apart from working full-time, as of right now we anticipate our lifestyle to cost roughly the same amount. (We intend to travel etc.) Because we are frugal folks, we don’t know how much we spend because we tend to just do what we want when we want and not worry too much about the cost, we are hopeful that tracking our expenses will help us identify where there are areas for improvement. We will keep you posted on that process for us.

 

  • Max out our 401K/403B’s with $18,000 each

 

The government allows you to contribute a maximum of $18,000 a year per person to a 401k/403B plan. There are a lot of reasons why it is important for us to max this number out which we will go into in full detail in a future blog, but for now just understand that it helps us get our tax burden down, funds a retirement account that we can get some “free” money from, and is building an account we won’t touch until we are in our 60’s. You will also notice that Rory has a 403B and a 401K, this is not typical and we will explain why this is the case and how to deal with this if you are in the same situation.

 

  • Max out our Roth IRA’s with $5,500 each

 

The government allows each individual to contribute $5,500 a year into either a Roth IRA or a Traditional IRA. A Roth IRA allows you to contribute AFTER taxes have been taken out of your paycheck so you can withdraw your funds TAX FREE after 59 1/2. A Traditional IRA is the opposite, it allows you to contribute PRE-TAX dollars to a retirement fund, but you must pay taxes when you withdraw the funds during your retirement. We will explain in the future why we each chose a Roth IRA, why we may change our contributions to a Traditional IRA in the future, and will discuss the pros and cons to both options depending on your situation.

 

  • Research and potentially max out HSA accounts

 

This is a fresh idea for us. We previously have heard about this as an option for early retirees, but didn’t think it was an option for us until just recently. An HSA account allows individuals and families to contribute money towards a Health Savings Account that is investable, and allows you to fund future healthcare expenses (which is the catch). This may be a way for us to put an extra $6,000ish dollars towards our retirement during the years we are working, so we are trying to decide if this is something we want to do. We will keep you posted as this idea evolves or dies.

 

  • Contribute $4,000/month ($48,000 a year) to our Index Fund

 

Our original number was $3,000/month, but we decided it is better to announce and try to hold ourselves to a more difficult goal so we decided to switch it to $4,000/month. We are feeling as though we can achieve this, but this year will be the true test. What we mean by an index fund is a “total stock index fund” we will elaborate on the concept in the future, but its important to understand that the “problem” functionally with retiring early is that true “retirement funds” like the 401k/403B/IRA are that you get massive penalties if you withdraw funds from them (other than very specific criteria) before 59 ½ . That’s a problem if you plan on retiring any years before that because you have no way of having cash-flow if you do not have an alternative. The index fund is our “early retirement fund”. There is no tax benefit to contributing to this, but you can take your dividends and sell shares as you see fit WHENEVER you want, so this gives you the possibility of investing in something that ideally compounds interest every year, AND allows you to withdraw money from when you want.

 

  • Contribute $2,000/month ($24,000 a year) to our House

 

We were fortunate enough to receive a very large “hand up” by Kristen’s mom. She was able to early retire in her 50’s as a teacher, and believes strongly that the key to being able to do so is due to owning your house as early in life as possible. She wanted to loan us the $75,000 we needed to do so with NO INTEREST… She only asked that we own our house in 3 years as a result of the loan, so we are paying $2,000/month starting in February 2017 in order to meet that expectation. We played with the idea of paying off the house in 1 year so we could brag that we did so, as well as the psychological benefit of doing so, but the numbers REALLY don’t add up doing so. In short, the opportunity cost of not investing in 403B/401K/IRA/Index funds for a full year is DRASTIC!. Uncle Sam would have got a LOT of our money for no reason, and we would have missed a full year of compounding interest in our investments. Which, given our short investment period (because we want to early retire) is too big of a cost to do so. So instead, we will pay off our house in 3 years which we still think is pretty aggressive and cool.

 

  • Pay off Chase Card with $7,400 remaining for pool

 

Yep. We had a pool put in our backyard! It cost us $14,000ish dollars. It’s a partial in ground pool. ½ the cost of a full in ground pool. We decided we wanted to do it instead of putting it off by 3-4 years because we feel like the happiness it will bring us (well, mostly for Kristen) is worth it. We live busy lives on the average workweek and we are working towards transforming our backyard into a mini-resort.

 

  • Build a Deck, pergola, and fence for backyard.

 

Kristen’s uncle is going to be kind enough to help us build a deck and pergola in the backyard, we are not sure of the costs of this yet, but between the cost of the deck, pergola, and fence to add to what we have done with the pool we feel like will build a sustainable cost relaxation area that will provide us many years of happiness.

 

That’s it. Those are our big plans for 2017. We are sure outsiders will look at our plans and feel like they are either too aggressive or too wasteful with our expenses for a pool and backyard (and we haven’t even announced our travel plans for 2017 yet) but the point is that they are OUR plans, and that everyone should pick their OWN goals and plans. We will discuss this more in the future, but our experience both professionally and personally, have led us to believe that everyone has different desires and goals for the future, and our paths to those ends vary just as much. The most important thing there is that people only strive towards their own goals… We fail terribly and feel terrible in the process when we work towards others’ goals. It’s the new year. What are your goals?

 

We will try to write some more details about how our plans will work and get a little more into our lifestyle, but our next big blog will be the end of our first month under our new plan. We will tell you all about what we did, what we spent money on, what we invested in, and thoughts and research into everything around those things.

3 thoughts on “The Road So Far

  1. youmeanme says:

    I think it’s just right, you clearly make enough money to enjoy the lifestyle you’d like ( pool, deck, travel etc) while meeting aggressive savings goals.
    For me frugality can be based on income. What can be wasteful aka debt for one person can be appropriate for another.

    Like

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