When do you know when you are done?

[cptacek]

Everyone says "start investing early, so your money has a chance to compound." Well, my question, is, if you do start early, when can you quit?

I'm 29 and have been diligently saving since I started my first after-graduation job 6 years ago, and have about $90,000 in my 401(k), $14,000 in my Roth-IRA, $12,000 in a taxable account, and am currently adding the max to both 401(k) and Roth-IRA, and $1000 to the taxable account a year. I make about $86,000 a year.

I've done come calculations, assuming 8% return, and if all I do is add $4000 to my Roth-IRA until I'm 50, and $1000 for the taxable account, I'll have about $2mil at 61. If I do what I do now for another two years, and then $4000 to my Roth and $1000 to my taxable account until I'm 50, I have $2mil by the time I'm 59. I guess you can say $2mil is my safe number, but by then, who knows?

I think I am doing ok with the investments, and would like to take some of the money I am currently investing in my 401(k) (only invest enough get the match) and buy land with it. I don't want to pull the plug too early, but I also don't want to tie up too much money for old age and not be able to fund some other dreams.

[creditcardfree]

One way to look at it is that you are "done" once you have enough money to generate an income...through interest or otherwise...that you can live on. That number is different for different people!

I think you are doing great with your investments!!

How much are you looking at paying for the land and when do you want it by? Just work backwards from that to determine how much you need to save each month for it and determine how much needs to come from your retirement...if you are talking about only a year or less, I say GO FOT IT!! If it's going to take longer to save the money...then I would be more hesitant, but that is just me.

Keep up the good work!

[Ima saver]

I have often bought land over the years. I have always sold it for a profit or built on it. When I buy land, I usually finance thru the bank. I put down 20% and then get a land mortgage. It then becomes a game with me to see how fast I can get the land paid off. That is what I used my challenge money for last year.
I got my last piece of property paid off in 2 years.

You are doing great with your investments!!

[Broken Arrow]

Congratulations on your enviable portfolio, especially for someone who hasn't 30 yet.

I've always thought frugality and investments are a state of mind and a way of life though. Meaning, I see it more as pacing for a life long marathon. So, while your investment strategy may change over time, you never really let up.

[Ima saver]

You are right, broken arrow. It is a life long marathon.

[Elgin526]

My father said his financial advisor told him when it was okay!

He wanted to retire at 55. Advisor said "You're not quite there yet". By 58 he got a thumbs up and he and my mother have never looked back!

The one big question mark is how long you and your spouse will live. There is no way to know how long the money will need to last. In my case, I've got a grandmother who will turn 90 next week, and a mother who is 62 who is in perfect (and I mean perfect!) health, no reason why she won't see her 90's either. But on the flip side, both my father's younger sisters died over 10 years ago. So who really knows? Plus, I could get run over by a beer truck tomorrow!

Anyway, maybe go find an independent certified financial planner. Have him/her "look at the books", give them an idea of what retirement lifestyle you have in mind (tons of travel, gated retirement community, and funding the grandkids college will take more money than, say, just wanting a cabin by the lake with a quiet lifstyle). They can give you an idea of what you'll need to retire, and may have suggestions on other ways to invest your money that you haven't thought of.

[greedy4chips]

If I had that much at age 29, we would have been done. Our current investments if we assume an 8% return would give us in the ballpark of 1.3 million to retire on at age 65 (I am 39). Assuming I can find a 5% CD or some similar fixed rate investment, we would have $65,000 per year to live on without touching the principle. It seems like a lot right now, but what is that worth in 26 years? We shouldn't have any debts to worry about so to me $65k will be sufficient to live off.

So if we firmly believe that is enough for us to live on, then we are done investing. However, we will continue to add to our retirement plans as long as it is prudent and does not compromise our life now. If you get an 'employer match' on your 401k then you almost have to take advantage of that, you would be silly not too at any age.

I know people who have contributed their 6% for the last 12+ years and put that money into the 'safest' investment option their 401k returns because they got the automatic 50% return from the employer match and a 4-8% yearly return from the fund. That has served them very well.

Just find a happy balance between saving for the future and living within your means in the present and you will be fine!

[zetta]

I'm in a similar situation to you -- I contributed the max to my 401k for many years in my 20's -- and had the same question, "When have I saved enough for retirement that I can enjoy more of my earnings today?" The best answer I found for that question comes from The Complete Idiot's Guide to Getting Rich. I made some notes on it in my blog: Booknotes: The Complete Idiot's Guide to Getting Rich: Zetta's Striving to Get Rich Slow. Here's a bit from that post:

Once you've figured out your current monthly expenses, the author lays out a calculation of two key values: Target Portfolio Goal (TPG) and Target Savings Goal (TSG). The Target Portfolio Goal is the amount of money you would need to have to be able to retire and live off the income without touching the principal. Target Savings Goal is the amount you need to invest each year to reach the TPG by your desired retirement date.

Next the author defines 5 levels of wealth:

Level 1: You are living within your means and save enough to meet your Target Savings Goal. Your financial focus should be on maximizing your actual savings amount by either increasing your income or reducing your expenses -- portfolio return is secondary.

Level 2: The returns each year from your investment portfolio are equal to your Target Savings Goal. This means that you are accumulating double your goal each year -- on part from your savings, one part from your investment returns. Your financial focus should be equally split between maximizing savings and maximizing investment return.

When your portfolio returns are twice your Target Savings Goal, your focus to maximizing investment return alone. The final goal at this level is to have returns three times your Target Savings Goal.

Level 3: Your portfolio returns enough to cover your annual spending, inflation, and your Target Savings Goal. Employment is now optional.

It seems to me that you've reached Level 1. Congratulations! You've set a Target Portfolio Goal of $2m (you can use the calculations in the book to double-check the value, but it seems about right to me), and the exact amount of your Target Savings Goal depends on whether you want to retire at 59 or 61. Or you could decide to reduce your TSG and plan to retire later -- it's entirely up to your preference at this point.

This is another good calculator to give you a sanity check on your plan:
Future Value/Annuity Calculation

[ericmedem]

Wow you are doing great with your saving, I just had to give some kudos to you

[MonkeyMama]

I think the thing is you really have a couple of decisions to make. Would you rather retire young, or enjoy more today? Seems like you are leaning toward the latter.

You probably could keep your contributions as is and then start putting all your raises to more fun money. You are young and will probably see some significant raises down the road??? OR You can keep contributing as is, and all your raises, and shoot for early retirement.

The nice thing about the point you are at is that you have created a tremendous amount of flexibility. We saved up so much by 25 we took a few years off to fund other dreams, not putting a ton to retirement. Which makes me think if you rather enjoy more, you could always consider foregoing contributions for a year to fund a really big dream. You have done well enough to have that flexibility. I much prefer to enjoy a little now myself. But it is a balance. We might save 30-50% for retirement for a few years, and then tone it down to 10% for a few years. IT seems to work for us. We have flexibility and we're on track. I think we toe the balance line pretty well, not many regrets of more we could enjoy, but I feel like we are also over-saving for retirement "just in case." Way too many unknowns at age 30, and healthcare scares me. Our target is $3-$5 mil in retirement but that is for a couple, and I know it is pretty aggressive for now. If you can reach $2 mil sounds like you are doing great - I would certainly enjoy my money a bit.

The whole marathon comment I think is spot on too. But you have the luxury to slow down a bit because you are so ahead in the race. Just be careful and don't slow down too much.

[jIM_Ohio]

Everyone says "start investing early, so your money has a chance to compound." Well, my question, is, if you do start early, when can you quit?

I'm 29 and have been diligently saving since I started my first after-graduation job 6 years ago, and have about $90,000 in my 401(k), $14,000 in my Roth-IRA, $12,000 in a taxable account, and am currently adding the max to both 401(k) and Roth-IRA, and $1000 to the taxable account a year. I make about $86,000 a year.

I've done come calculations, assuming 8% return, and if all I do is add $4000 to my Roth-IRA until I'm 50, and $1000 for the taxable account, I'll have about $2mil at 61. If I do what I do now for another two years, and then $4000 to my Roth and $1000 to my taxable account until I'm 50, I have $2mil by the time I'm 59. I guess you can say $2mil is my safe number, but by then, who knows?

I think I am doing ok with the investments, and would like to take some of the money I am currently investing in my 401(k) (only invest enough get the match) and buy land with it. I don't want to pull the plug too early, but I also don't want to tie up too much money for old age and not be able to fund some other dreams.

For me:

current expenses/.03 before age 59
current expenses/.04 after age 59

Meaning if I retire early, living off 3% of initial portfolio value is the goal (increasing withdraw around 3% per year to account for inflation).

Normal retirement is a 4% SWR (starting withdraw rate), also increasing this 3% per year for inflation.

Make sure you understand this is expenses and not income. Your numbers look similar to mine. I am a few years older and have slightly more saved right now.

The issue is look at gross salary (86k in your case), and then compare that to your take home (I will guess 5k take home per month/60k per year). Take your paycheck and multiply by 24 or 26 (depending on how many times each year you get paid). That is where the 60k came from (it was a guess).

33x60k=$1.98 M, this is what early retirement looks like with 60k of annual expenses.
25x60k=$1.5 M, this is what you'll need for normal retirement for 60k of annual expenses.

Both numbers are ball parks. Because part of your difference of gross vs net pay is taxes, you might need slightly more, but because of lower tax rates, no mortgage, and lower expenses for not working, you also might need slightly less.

I make 68k per year and have close to $130k saved right now (401k and Roth), and my target retirement age is 60 (based on my calculations)... biggest problem is our mortgage won't be paid off at that time... so paying down mortgage drops expenses considerably, and that would also allow retirement earlier, I think.

There is an early retirement forum at
Early Retirement Forum - Index
which has many calculators and discussions. My numbers are quite conservative relative to what I read on that forum. Many people have retired on much less than 25X expenses.

[cptacek]

Thank you for all of your replies!

Creditcardfree, I don't know yet when I can buy the land. I want to buy pasture land so I can expand my cow herd, I'm guessing $500-$600 per acre, maybe 160 acres, but it depends on the quality of the pasture and how many acres are up for sale. That is something I didn't put as an investment in my original post...I own 89 cows that are almost paid off - hopefully by next spring - and after they are paid off, that will add another $15,000 a year to my cash flow. Currently, that is my most expensive loan (percentage wise) and so I am sending everything I can to that to pay it off.

I will definately have to get a business loan for this (as Ima suggests), but I have a great relationship with my banker because of the cows, so no problem there. But, this is a little different than typical buy - improve - sell cycle that happens closer to the city...I want to buy land and hold on to it. Hopefully won't ever have to sell it...I don't want my (theoretical) children or grandchildren saying "that was (grand)ma's but she couldn't hold on to it."

If I look at it like that, I am actually investing more than I thought (through the cows) and if I buy land, that is an investment too, not just an expense. I can always sell the land, or the cows, if I got in a bind, even though that would be a last resort. And owning the cows makes me money every year, and owning the pasture allows me to get more cows.

Monkeymamma, you are right. I can take a break for a while and then start up again any time. As obvious as that is, I never thought of it like that.

The unknown scares me too. What could happen to prices in the next 30 years? How much will I need by then? But I also worry about, what if I lose my job and can't find one that pays as much as I make now, or if I want to stay home (again, with my theoretical kids), and I have all this money locked up in retirement but we're struggling to pay the bills now?

[jIM_Ohio]

Thank you for all of your replies!


The unknown scares me too. What could happen to prices in the next 30 years? How much will I need by then? But I also worry about, what if I lose my job and can't find one that pays as much as I make now, or if I want to stay home (again, with my theoretical kids), and I have all this money locked up in retirement but we're struggling to pay the bills now?

You cannot predict the future, you can plan for it.

Curious how price of "farming exports" keeps up with inflation?

If someone buys milk from you (I assume you milk cows and sell the milk?), and I pay $2.99/gallon, then inflation increases in one year to where I pay $3.99/gallon, did your revenue go up 33% too?

Your farm may be an inflation hedge unique to you.

[Aleta]

What I had to do to ease my mind about retirement and saving was to find the number. The number is what you're going to need at retirement and the amount that you have today and will contribute until that time to reach your goal. One should always fund the retirement. A few years back when the stock market went down, we lost 1/3 of our money at that time because I was a little too aggressive not to mention what you lose each year until it catches up. Because you never know what will happen, you should always fund your retirement. That way, you won't be losing any sleep. Also, it frees you up to fund other goals in your life. I think that you are doing great. Keep it up.

[tinapbeana]

cptacek:

just another way of looking at things: consider the cows and land as part of your retirement plan, not an alternative. at least i would, since they provide income in the long run above and beyond what they would cost you in the short run.

with 100-200 acres, it would be fairly easy to clear out a homeplace and take time building a house there while you lived somewhere else. that way, you've got another source of income for the present (a rental) if you wanted and time to pay the land, the cows, and the house off well before retirement.

that way, when the time comes, you can retire to a leisurely life on your own ranch, with everything already paid for, and a built in income source from the cows. having no housing costs in retirement instantly makes the money you have saved for retirement stretch that much further...