SET FIRE TO YOUR RETIREMENT PLAN
Is your retirement plan on track?
Will it get you where you want to be financially on time? Most people’s retirement plans are underfunded. Many corporate pension plans are also underfunded. Social Security was only designed to fund 40-percent of a retiree’s income, and it is expected to run out of money.
But there is hope.
FIRE IS A MOVEMENT
There is a growing community of people who won’t settle for what a company or the government thinks should be their retirement age or income. The movement is called FIRE, or Financial Independence, Retire Early. It is a lifestyle movement where individuals and couples take financial responsibility for their own futures with the idea of becoming able to retire early.
Like the guy building a fire in the picture, people like you are placing greater emphasis on lighting a fire under their financial future. They are taking charge and not waiting for someone else to tell them when they can retire.
I started reading about the FIRE movement several years ago in a blog from Chad Carson. And started following others who had put this into practice, like Mr. Money Moustache. I started asking, “what if?”.
Take a minute and ask yourself, “What would I be doing if I did not have to go to work?” You might even already be there.
Imagine telling your boss that she needs you more than you need her. And that you don’t have to work but choose to. My wife did and loved it.
Imagine not having to work overtime or on weekends just because your boss or company asks you too.
Maybe there is a job you want to do but don’t want to have to rely on a steady paycheck.
Imagine having time to take your family on a 6 week vacation. Or take a two week transatlantic cruise that your friends just told you about and they invited you to join them.
FIRE is not about retiring from a job and doing nothing. It’s about taking control of your financial future and generating passive income to cover your lifestyle. Then you have more choices as to how to spend your time. You can have more time to spend with family and friends, more time to be physically active, and more time for spiritual study. But the choice becomes yours, not someone else’s.
How much money do you really need each month to cover your expenses?
A major component of FIRE is reducing your expenses so that you have more funds available to invest. We’re not talking about going on a beans and rice diet until you retire.
The most effective way to reduce expenses is to pay off all consumer debt. We started by paying extra on the loan with the lowest balance. When it was paid off we added what we were paying on that loan and started paying extra on the next loan with the lowest balance. That strategy is known as the debt snowball.
We also choose not to buy new cars. Instead we find something nice that is two to four years old and drive it until it has at least 150,000 miles. When the repairs get too high it is time to find something newer.
When your monthly obligations are lower then you can live comfortable on less. And save up for those items that you use to put on a payment plan.
You can also put a higher percentage of your income toward your investment portfolio.
A key component to FIRE is to contribute a high percentage of your income. Investing 10-15 percent of your income is a common recommendation for traditional retirement planning. It works if you start in your early 20s and your investments earn 10 percent.
Many FIRE proponents choose to contribute much more to achieve their goal of financial independence in their 40s. I met a lady recently who, with her husband, were able to retire in their early 30s. Mary started investing in duplexes at the age of 21 and has been determined to be financially free. She chooses to work as a nurse several shifts a month and her family is taking a 6-week vacation this summer.
The contributions must be put to work. Many people choose the stock market. Others decide to take a more active role and find opportunities in real estate. My personal preference is real estate including private lending, syndications and private placements.
The objectives are to maximize cash flow and grow the portfolio until your cash flow exceeds your expenses.
We would love to hear from you. What are you doing to accelerate your financial plans for retirement? Are you already implementing some of the strategies above? Or something else?
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Mike is a retired aerospace engineer with a passion for real estate investing and teaching financial literacy. He lives with his wife in Daytona Beach, Florida.