## How Much Money Does it Take to Retire By 40?

That’s the questions, isn’t it?

For years, I have been obsessed with the idea of retiring super young, but disregarded the idea because it seemed like the massive amount of money that I would need to acquire was beyond reach.  Anyone every felt like that?

But, when I sat down and actually figured out how much money it would take to retire by 40, to my surprise it wasn’t as bad as I thought!  In figuring it out, I used a couple of assumptions:

My investments will generate a 7% return each year (excluding passive income).

I will live off of 4% of my investments each year (excluding passive income).

BTW, passive income is income from sources such as rental houses, etc….Not a job, but sources of income.

If I assume that I am returning 7% each year, but am only living on 4%, that leaves me a 3% “buffer” of sorts to either cushion me against inflation, a year with less returns, or to grow my pot of money :-)  See how that works?

Next question – How much money do I need to live on per year?  My Current Situation post detailed our current monthly expenses.  Basically, with the debt we currently have, our monthly expenses are \$3,496.33, or \$41,955.96.

However, if we were to pay off our cars (\$34,487.96), credit cards (\$2,481.57), the personal loan (\$11,304) and Student Loans (\$15,400), our monthly expenses would be \$2,064.33 per month, or \$24,771.96 per year!!!! That’s a crazy big difference, right?

\$24,771.96 is 4% of \$619,299.00

Most people think that you need millions and millions of dollars to retire, but obviously that is not the case!  We are paying off debt to reduce the amount of money that we need to retire, but even if we kept our current debt, we would still only need \$1,048.890.00 – just over a million dollars?

When I saw that number, I breathed a sigh of relief!  We can do that! Yes, it is a big goal, but it is much more doable than several million dollars!

With that being said, The Big Guy and I need more than just \$619,299 to retire.  We have to pay off our current debt, which totals \$63,673.53.  Add that in and we have a grand total of \$682,972.53.

Can it be done?  That’s what you are thinking, right?  Check back on Monday for my plan

Think about your own situation.  Are these numbers close to where you are at?  Does my total seem doable, or does it seem just as unattainable as the million dollar total that “the experts” give?

THE PLAN

The master plan, if you will:

Step 1a: Pay off all debt except our mortgage 5-year debt free plan.  Easier said than done, right?  See August Financial Update.

Step 1b: Cut our expenses wherever we can to help the debt payoff process, and to be able to live on less once our debt is paid off.

Step 2: Move.  Either sell our house for a tidy little profit, or rent it out.

Step 3: Continue to invest \$2K per month (freed up because we are debt free) plus all passive income for 13 years.

Now, this is a very simplified plan, but according to my math, we will have more than \$650,000 in the F*&^ You Money Pot to allow us to retire!

Additionally, the plan is to rent out our current house in 5 years, and to develop 2-3 more rental properties to generate some passive income over and above the income from the F*&^ You Money Pot.

What do you think?  Doable?  Can you find flaws in my logic or math? I would love to hear your thoughts!

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### 5 Responses to How Much Money Does it Take to Retire By 40?

1. Alex says:

Great article, but I think you are low on your number.

The math is spot on, but I think you don’t have enough income coming in for things like replacing your cars, fixing the roof, taking vacations, etc. When someone retires at 70, they can coast to the finishline (nice way of saying dying) on those expenses, but at 40, you will probably replace your cars 5 – 7 more times minimum, live a very active lifestyle, etc.

Plus I think you need to be really careful buying 2-3 rental properties within the next 5 years considering you have close to \$60,000 in non-mortgage debt. That leads me to believe that you will take out big mortgages and will have a small pile of cash…..which means you can get destroyed if another 2008 comes along and your renters deside to be deadbeats.

Hope I’m not coming across harsh because I really like your articles and you guys are moving in the right direction!

• Not at all! I love feedback. Sometimes, you have to bounce ideas off of other people in order to see the flaws.

The plan is to have all of our debt – except for the mortgage, paid off in 5 years when we move out of our current house. I am really hoping to avoid taking out huge mortgages because, quite frankly, since we will have paid off well over 60K in debt, I am really in no hurry to accrue more debt without a good-sized return being generated by it….

But, I totally see your point about another 2008 coming along and ruining us. I have seen many deadbeat renters (father in law has waaaayyyy too many rental properties) and it is truly one of the things I am scared about…and for that reason I am not married to the idea of more rental property.

Thanks for the encouragement. I would love to hear from with any more comments!

2. Sicorra says:

I haven’t really looked at retirement that way. Living off the return from your investments is the way my father has funded his retirement. Well that and his pension.

We did look at buying properties to rent or flip at the beginning of 2006, the year that real estate prices sky rocketed. It was hard to find a good deal back then as even the most run down shacks were expensive. of course the market changed over the next few years, but by then we had lost interest in doing that.

• 2006….I totally see why you didn’t buy then We were really lucky to get a great deal on our house!

I haven’t tried it yet, and I really only get one shot at this method of funding my retirement, but it is encouraging to know that someone else has done it!

Have a great day!

3. Frank says:

Did you include taxes that you will need to pay when withdrawing 4% every year?