My goal is to retire by age 50. Currently, I am 35 years old, reside in Madison, Wisconsin, and work at a biotechnology firm. I earn $4,100 in gross earnings per month, which translate to $2,600 in net earnings per month. I have four main retirement strategies:
1. Fidelity 401(k). I contribute 6% of my income to my 401(k) retirement plan. I earn $50,000/year. My company matches 50% of my contributions, resulting in $4,500/year in 401(k) contributions. Currently, I have $11,000 saved in my 401(k) account.
2. Dividend stocks. I have $33,000 invested in dividend stocks and earn $230/month in dividend income. I invest primarily in Royal Canadian Trusts, which typically return 10-14% in dividend income.
3. Real estate. Some people would not consider a house to be a sound retirement investment strategy. However, by paying additional principal each month (I pay an extra $500/month on a 30-year mortgage), I should be able to pay off my house in about 15 years. After those 15 years are over (placing me at 50 years of age), I will have free living quarters or a fully paid off property that can be sold for $200,000.
4. Freelance writing/blogging. Given the retirement savings posted above, I would not retire at age 50 if I didn’t keep a part-time job. Currently, I earn $800-$900/month via my freelance writing/blogging efforts. This money pays my mortgage every month.
In summary, given that I contribute $375/month into my 401(k) account, $800/month into my dividend stocks, and $700 into my real estate (net principal ($200) + additional principal ($500)), that equals $1,875/month going for my eventual retirement. My net earnings are $3,450, which includes my monthly income of $2,600 plus a monthly average freelance income of $850. Since $3,450 – $1,875 = $1,575, I budget the rest of my money carefully.
My other expenditures are as follows: about $600 – $800 is spent on food, gas, car insurance, and clothes. Another $300 goes for property taxes (which total $3,600/year). I pay a $100 water bill every 3 months, and my gas/electric costs are $200/month. Finally, my cell phone and Internet bills are $100/month. That gives me $142 – $342 of “play” money per month.
With $1,875 being set aside for retirement every month, this equals $22,500/year. In 15 years, that amount equals a retirement portfolio of $337,500. Since I will not cash in my 401(k) account at that time, and since I will probably sell my house, my final retirement portfolio will total $377,000 (house ($200,000) + future dividend stocks ($144,000) + current dividend stocks ($33,000)).
If I transfer all my assets into dividend stocks that pay 10-14% dividend income, I will earn $37,700 – $52,780/year. These earnings will be sufficient to rent an apartment, travel, pay for private health/dental insurance, and afford some luxuries. If I continue earning side income, my total earnings will be even greater.
For those who are seeking to retire early, or just retire well, here are several pieces of advice:
1. Save your cash instead of spending it foolishly. Forget about keeping up with the Joneses and look after your own future.
2. Invest your spare cash in dividend stocks that pay a high return. This ensures that you have a guaranteed source of passive income.
3. Compounded interest or dividend reinvestment will make your money grow faster.
4. Budget your leftover cash so that you do not fall behind on credit card and other bills.
5. Earn side income through work-at-home jobs, freelance efforts, or even taking in tenants. Every little bit of side income pushes you closer towards early and secure retirement.
Halina Zakowicz owns and operates Your Money and Debt, a financial web site that helps people save and invest money, pay off debt, and build up wealth for the future.