A 23 year old who wants to retire young.

KeithFlournoy

Hello,

I'm 23 years old and I'm looking at saving up for retirement, because I'd like to retire young. I came up with schedule, with a few different options for amounts I'd need to spend in retirement (I think 30K is most realistic), all the numbers are in 2014 dollars so when you see 5% return, that's real return, not nominal.

Basically I don't really know what I'm talking about, so my calculations are probably "misguided" for one reason or another. I'm hoping you guys can point it out.

Also, there's no wife or kids in the picture now, and I don't expect there to ever be really.

I have two images here, you have to remove 2 spaces to see them, one right before ".org" and one right after. These are the charts for how I would like to save and retirement ages that potentially work.

postimg .org /image/ywggw43vn/
postimg .org /image/69a5e4a6r/

SuperHan

Instead of posting images you can upload to an image hosting website and share the link with spaces in that we can take out.

However, at 23 there is NO way you can no there are no wife/kids in your future.

And you have no way of knowing what £30k will get you in even 30 years, so I'm not sure how you've calculated that either. I look forward to your images.

Southend1

Why are you working in dollars? Are you hoping to retire abroad? Is your salary paid in sterling or some other currency?

KeithFlournoy

SuperHan wrote: »

Instead of posting images you can upload to an image hosting website and share the link with spaces in that we can take out.

However, at 23 there is NO way you can no there are no wife/kids in your future.

And you have no way of knowing what £30k will get you in even 30 years, so I'm not sure how you've calculated that either. I look forward to your images.

postimg .org /image/ywggw43vn/
postimg .org /image/69a5e4a6r/

For the sake of simplicity I calculated everything in 2014 values. So what I tried to do is use real returns instead of nominal returns, so when I say 30K I mean 30K in 2014 dollars.

KeithFlournoy

Southend1 wrote: »

Why are you working in dollars? Are you hoping to retire abroad? Is your salary paid in sterling or some other currency?

I didn't realize this was a UK forum actually. When I searched retirement planning forums this was one of the first to show up. I live in the US, my salary is in USD, I would retire in the US.

atush

Basically I don't really know what I'm talking about, so my calculations are probably "misguided" for one reason or another. I'm hoping you guys can point it out.

I think this is your youth showing, you probably wont keep to this. I didn't even though I still thought that later than you lol.

How early is early? 55 is early now, 50 used to be. given you dont take up smoking, drinking to excess or drugs (or fast cars) you are statistically going to live to bear 100. And I know people used to feel old at 40, but I felt young still. You may still feel young at 50?

So, dont know what your salary is (would have helped) but I do know that if you you spend considerably less than you earn after tax is is possible.

So min to save at your age in a pension is 10% (this can include Tax relief and employers contribs) but go for closer to 20% if you can- 2 reasons. This is the time of most disposable income, so you wont miss it as much and it will have the longest to grow (the magic of compound interest). Later you may have setbacks (ie you might marry or have kids) and being aggressive early will help.

On top of this, save in cash for emergency funds. Once you are up to 3-6 months spending, go for S&Sisas. These are more or less like pensions in what you put in, but can be accessed before age 55 unlike pensions but also dont get tax relief.

Finally you need a place to live and owning is better than renting ofr any retirement esp an early one. So saving cash and S&S isas for a house/flat deposit is wise. As renting is generally both less secure/safe (you could get turfed out and rents could skyrocket) and also the costs are higher than living in a mtg free home. Also should you have a larger home than you need come retirement age (we have 5 beds but will go down to 2/3) then you could sell and buy smaller and then have extra cash for retirement (downsizing).

there is a whole lot of thinking you need to do lol.

atush

SuperHan wrote: »

Instead of posting images you can upload to an image hosting website and share the link with spaces in that we can take out.

However, at 23 there is NO way you can no there are no wife/kids in your future.

And you have no way of knowing what £30k will get you in even 30 years, so I'm not sure how you've calculated that either. I look forward to your images.

most retirement calculators take a fig of todays 30K but factor in inflation to give you an income equiv to that in tomorrows buying power?

KeithFlournoy

I'm just being ambitious. I'm saving about 65% of my post tax income. My pay check is about $4850 after taxes, 401K, insurance, etc, and I spend about $1600 of that a month. My 401K is $450 a month, and I said I save about $3000 of my pay check (let an extra $250/month go towards large one-time purchases). I make much more than I need, but would rather retire young than spend more.

That $3000 from each pay check gets invested in stuff which can be liquidated in between 3 days and a week if need be. But I still always keep about 5K USD in my checking account.

I rent for $500 a month. I might buy some time but I want to be more certain that I will live here long term before I do that. The typical advice I've heard is that if you're not going to live in a house for at least 5 years, you're better off renting, because of the cost involved in buying and selling the house.

atush

KeithFlournoy wrote: »

I didn't realize this was a UK forum actually. When I searched retirement planning forums this was one of the first to show up. I live in the US, my salary is in USD, I would retire in the US.

the basics are the same, cash emergency fund, then a pension/401K , safe secure place to stay (that you own preferably) then save extra into equities that are tax efficient for your jurisdiction.

KeithFlournoy

So, looking at it, when I get a mortgage eventually, it will probably not be dramatically different from my current rent (unless I buy a house with multiple bedrooms, in which case I'd rent the others out to offset the increase), so even if I buy a house, it's not going to dramatically change my rate of savings. I guess, I don't really see what the flaw is there.

I guess what I'm looking at, if someone can save 20% of their income and retire at 55, why can't I save 65% of my income and retire at 40? I don't really like working and I don't have expensive tastes.

atush

KeithFlournoy wrote: »

I'm just being ambitious. I'm saving about 65% of my post tax income. My pay check is about $4850 after taxes, 401K, insurance, etc, and I spend about $1600 of that a month. My 401K is $450 a month, and I said I save about $3000 of my pay check (let an extra $250/month go towards large one-time purchases). I make much more than I need, but would rather retire young than spend more.

That $3000 from each pay check gets invested in stuff which can be liquidated in between 3 days and a week if need be. But I still always keep about 5K USD in my checking account.

I rent for $500 a month. I might buy some time but I want to be more certain that I will live here long term before I do that. The typical advice I've heard is that if you're not going to live in a house for at least 5 years, you're better off renting, because of the cost involved in buying and selling the house.

buying will depend on where you live/work.

Some markets like the UK (london/SE) are going up and liquid (for USA in/outside DC/nyc for example) some markets are slower (like Vegas) so in those you would rent). But eventually either place it is cheaper/safer to own.