Follow along on an out of the box solution to help get you to your FI number faster...
I am just a normal 37 year old millennial with a corporate job, a side hustle, a stay at home wife, and 3 children. I have two paid for cars, 10 years left on my 15 year mortgage, and no other debt.
Without changing anything, I will reach my pension retirement age of 55 and will be guaranteed a comfortable retirement. I would beat my dad’s retirement age of 56.5 and my grandpa’s retirement age of 58.
According to this Gallup Poll, most Americans predict they will retire at age 66. My worst case scenario would be retiring at age 55 comfortably. How do I change this and retire at age 45? As many FIRE Early Retirees say, my worst case day would be everyone’s normal day of going back to work. What would you sacrifice to not have to work again?
What’s the “Typical” way to reach FIRE?
The majority of the FIRE community goes into detail of successful ways to reach FIRE discussing one or all of the following items into grave detail, which is why I will only give a brief overview:
- Do a monthly budget. Understanding where your money goes is key to any successful FIRE strategy or like Dave Ramsey puts it, “Tell every dollar where to go rather than wonder where they went.”
- Get out of debt. Your income is your greatest wealth building tool, so long as its going to you and not to someone else as debt payments. I recommend the snowball method from Dave Ramsey as it worked for my us.
- Minimize expenses to increase available funds. Cut all those non-essentials or like my wife likes to say before donating a box of my stuff, “Does this item bring you joy?”
- Increase your income. The increase in income can through new jobs, negotiating a higher raise, or side hustles (like a pizza delivery night job or Uber).
- Increase your savings rate. You can do Dave Ramsey’s recommended 15% savings rate or aim for 50% as some fellow FIRE bloggers aim for. This savings would go into non-taxable accounts like HSA’s, IRA’s, 401k’s then brokerage accounts when those are maxed out.
Will doing all the 5 items above help me reach FIRE? Yes, following those steps definitely will and have been my focus point for the last 6 years since learning about Dave Ramsey and becoming debt free (except for our mortgage). I will definitely reach FIRE by age 55 when I can receive my company pension in ~18 years or 2037, but who’s counting?
How do I knock a decade off of my retirement date and retire at age 45?
The norm of the FIRE community is to follow the JL Collins Stock Series for investing. If I just invest in a low cost, passive index fund VTSAX to accumulate wealth I will be set. By definition a very simple path to wealth based on 100+ years of stock market data.
The typical calculation is to use the 4% rule (25 times expenses) to figure out our retirement number. Our annual expenses are $48000 making our number is $1,200,000 if we want to retire before the mortgage is paid off. If our mortgage is paid off, our annual expenses become $36000 reducing our number to $900,000 to retire.
As of right now our 401k balance is $312,000 with an annual $25000 contribution, that includes the company match. As a result, this balance would become 1.2 million dollars in 10 years, based on 9.74% annual return from VTSAX since its inception. In 10 years I’ll be age 47, that would be a pretty good early retirement age. How many people get to retire before age 50 from corporate america?
What if there was an investment strategy that reduced that time from 10 years until 6 or 7 years? Would you be intrigued? Consequently, after reading the below article, Four Pillar Freedom compares the S&P 500 vs the Nasdaq since 1972., I may have determined just how to accomplish that.
After my review of the above data, I determined that if you can tolerate increased volatility, you can get better returns with a NASDAQ focused portfolio. The majority of people cannot tolerate high volatility and would sell after market corrections and miss out on the big gains which would make this strategy detrimental in the long run.
Where do I go from here?
However, what if there was a way through backtesting other portfolio strategies, I could get there 2 years faster and return 14.4% with lower downside potential? This would allow me to retire at age 45. Would it be worth it? How much is two years of your life worth to you? The worst thing that could happen is that I would have to work 2 or 3 years longer. The best case is that I could be out of the rat race early.
I have plowed through numerous backtesting of index funds, mutual funds, bond funds, etc to try and maximize my portfolio. You can follow my monthly leveraged portfolio posts I will be publishing regularly to show you how my portfolio is in comparison to the S&P 500 and VTSAX.
The next article will be reviewing in depth the backtested portfolio and how I plan to leverage my portfolio to retire in 8 years.
