How to Buy Retirement

Here’s the Distilled Dollar Blueprint on How to Buy Retirement, so to speak.

Where it made sense, I included hyperlinks if you want to read or listen more on a specific topic. Think of it as a mad libs version of DD where I included all the best links over the past few months. Enjoy!

How to Buy Retirement


Intro
As mentioned last week, the snowballing liability of our retirement expenses can be fully funded years before we reach retirement.

By avoiding the cost of not utilizing compound interest early in our lives, the amount of money needed for retirement begins to decline.

From this perspective, I will tackle how to effectively “buy” retirement as early as possible.

The first 2 steps are relatively fast, followed by 3 key principles

1st Step – Test
The first step involves 6 months in my life where I learned this step the hard way.

The first three months involved a negative rate of investing, where I sold shares in a post tax investing account to pay for credit card bills. Part of my mistake was not maxing out my 401k, but that mistake ended up allowing me to avoid credit card debt. Either way, I had not developed the habits to invest early.

For the next quarter, I decided to focus on investing as much as possible from my paycheck. The following 90 days I managed to carve off 30% of my income and invested* $4,182.

If we assume 6% growth with 2% dividends and 2% inflation, then my $4,182 could turn into $51,231 by age 65.

2nd Step – Don’t Turn Back
We’ve never turned back since, having only further increased our resolve to execute on our life strategy to reach FI.

Our total investments in Q1 of this year, in comparison, will amount to ~$225K.

Or another view: The last 90 days may pay for more than half a decade of retirement.

The $4,182 amount has already produced a remarkable return, having grown to $6,740 as of writing this near the end of Q1 ‘17. This growth may well push the earlier projection up more than $10K to $61,700 by 65.

Or another way to view it: 90 days of investing at 30% of my 2013 income may possibly pay for 18 months of retirement at 65.

To help keep track of investments and if you don’t want to use a paper and pencil or excel, then I recommend PC as they track spend and analyze investments.

The next three sections will cover how we invest, frugality as a lifesaver, and maximizing income.

How We Invest

This section is likely the easiest as I have followed my own advice as written about here and discussed here: I buy slices of nearly all publicly traded companies in the U.S., giving me an exposure to the Economic Machine.

Despite the stock market hitting records repeatedly in the previous few years, we continue to invest a part of all our earnings into our portfolio via index funds.

Are stocks too expensive?

Frugality As A Lifesaver

Paraphrasing an old almanac, “Do you love life, then do not waste time, for that’s the stuff life is made of.”

By being frugal, or economical with our time, we are being efficient and effective. We are giving into our biology to maximize results while minimizing effort.

The opposite may be spending impulsively, using more income than we would prefer towards items we don’t care for.

This is why I view frugality as a lifesaver.

We effectively avoid trading our time for money.

For more on minimalism, listen here.

Maximizing Income

Once we establish a baseline of frugality and channel our extra cash into investments, we then want to maximize our income.

Side hustles have been the rage lately. I’ll be detailing this more in my upcoming net worth report, out next week. For now, you can read how to start a side hustle, tips for a sustainable side hustle, and a two person take of side hustles.

Another method I applied was being as smart as we can in our careers. Maximizing our value to the firm may mean looking at things through the lense of others more often.

Moving forward, we are utilizing our push for maximizing value, while focusing on two other key elements in 2017 to save even more.

But, there will be more on 2017 in our upcoming net worth report.

Conclusion

This article attempted to address our solution to cover the cost of retirement early in life. It represents our blueprint today. Naturally, or dare I say expectantly, our blueprint will evolve over time as all things continue to change. We feel more assured walking into that future now that we are not missing the advantages of compound interest.

Are you covering the cost of retirement?

-Matt

P.S. Check out the newly launched course page and be a part of the early sign up crew!

9 comments… add one
  • Mrs. Picky Pincher Mar 27, 2017, 6:29 am

    These are great points! So far we’re focusing on getting out of debt, since the returns would be similar to investing, anyway. We want as few bills as possible during FIRE in case the economy goes upside down again.

    • Distilled Dollar Mar 27, 2017, 7:03 am

      Agreed – especially if debt is very high at say 8%, 9%, or obviously 10%+.

      I’m sure we’re all curious what the actual rate of return will be in stocks over the next 30-40 years. My guess is accounting for inflation and dividends, we may see ~6% return.

  • Brad - MaximizeYourMoney.com Mar 27, 2017, 7:11 am

    Mrs PP has a great point – getting rid of debt is like a guaranteed return on investment comparable to (or higher than) investing in stocks. After that, pour as much as possible into savings. We’re 100% debt free so only need to consider ourselves with the investing growth and passive income side of things. It’s a great place to be – I highly recommend it. 🙂

    • Distilled Dollar Mar 27, 2017, 7:21 am

      Agreed again – it all depends on what interest rate we have on our debt is. For us, we’re sitting at around 4-5% so we’re benefiting from investing to the tune of $2,652 this quarter, all from investing over paying down debt. Granted, this is a bull market, so the tide could easily swing the other way where we lose money in a quarter, but I’m more focused on the expected long term returns.

      • Brad - MaximizeYourMoney.com Mar 27, 2017, 7:27 am

        Yeah, at 4-5% I’m guessing this is mortgage debt? If so, I’d do the same and continue investing. In fact, that’s what we did. We put some money toward accelerated mortgage pay down but even more into investments. With mortgage debt you also have the tax write-off, so that 4% winds up looking more like 2.5% when all is said and done.

        The way we finally hit 100% debt-free, mortgage and all, was to sell our big house and downsize – using the equity balance to pay cash for a smaller house. We never stopped putting money into stocks once our only debt was the house.

        • Distilled Dollar Mar 27, 2017, 7:59 am

          Most of the debt is student loans, all undergrad. If we had grad school debt that would be a different story altogether.

  • Ryan @ Just Another Dollar Mar 27, 2017, 10:26 am

    We’re working on a hybrid method for right now. Investing in our 401k’s only to the match (will total about $15,000/yr) and using the rest of our disposable income to aggressively reduce debt. Our plan for after we’re debt free is to purchase a duplex or triplex and cut our living expenses to be able to invest as much as possible. We’ve got an okay start in retirement accounts that will continue to grow for the next two years while we finish paying off debt. Thanks for sharing your strategy, it’s great to see the different paths everyone takes.

    Ryan

  • Chad @ Finding Your Financial Balance Mar 27, 2017, 10:42 pm

    Great points here Matt. My wife and I paid off our $102k in student loans by sort of hybrid method also. Our various student loans were broken up into several different actual loans based off of when we borrowed them, and back then (2005-2007) there weren’t many options for consolidating that I recall. So, we sort of did the snowball method, and knocked out the higher interest ones first and just kept adding those payments onto the next one. Some of our loans were as high as 8.5% and most were 6.8%. All the meanwhile, we were also hitting our match on employer 401(k) when we could (our job situations were up and down there for a few years) and contributing here and there to Roth IRAs.

    I specifically like your comments on maximizing your income. No matter what you do in life I feel like to get where you want to be there are always sacrifices and a lot of hard work. I have had multiple streams of income over the years from different side hustles and it definitely helps with things such as paying for vacations for people like myself with a travel addiction, or extra money to invest or pay down loans. I am an IT consultant by trade, so I have always done IT work on the side to make additional income, and about 10 years ago I got my real estate license and have been selling real estate here and there over the years. It hasn’t made me rich, but its certainly been helpful. And, the plus side of it is that I actually enjoy the work, which makes it even that much better. I’m totally with you on maximizing your income..

    Great post!

  • Dividend Diplomats Mar 28, 2017, 7:56 pm

    DD –

    Love the article and passion behind it. I am actually wanting to almost pay my auto loan off to simply open up the cash flow to invest more and spend less. It’s been killing me – as the market, to me, has provided difficult times to find a nice dividend yielding stock. Appreciate the article and the heart behind the writing. Keep the steps forward to retirement.

    -Lanny

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