This is a guest post by Corey, the creator and author at 20’s Finances. His personal finance blog strives to offer creative ways to save money and plan for the future.
What if I were to tell you that I am in my early twenties and am not worried about having enough money to retire on? What would be your first thought? In case you are thinking that I have won the lottery or received a large inheritance, neither of these is the case. You could also be thinking that people in their twenties don’t realize how much money is needed to retire. This may be true for many, but I DO have a retirement plan. My lack of concern or failure to worry isn’t because I am not thinking toward the future.
All financial experts agree that the best advice for a sound retirement plan is to start early. Many people in their 20’s fail to start planning because they are unaware of the benefits of compound interest or are caught up in buying the latest gadgets. Fortunately for me, I am in my early twenties and have already begun thinking about those important retirement years. Before I praise myself too much, I should also admit that I am not doing everything I can to save for the future and I am okay with that. In fact, when it comes to planning for retirement I do not spend a lot of time trying to optimize my investments and I prefer it that way. Needless to say, I thought it would make for an interesting post to justify my relaxed approach to retirement for you.
When it comes to creating my plan for retirement, I prefer to take a hands-off approach. I don’t want the difficulty of having to worry about transferring money to a mutual fund during an unstable market or watching the market for any unexpected falls. Instead of worrying over the details, I prefer to invest my money in a sound investment and leave it there for 35 years or so. Those of you who are more experienced investors may suggest that I am losing lots of money by not optimizing my investment funds. To be quite honest, you are probably right. I will probably miss out on some great investments because of my approach, but this doesn’t mean that I won’t be prepared or able to live comfortably in retirement. Most importantly, this doesn’t mean that I don’t have a plan.
What My Plan Looks Like
To assure you that I am planning for the future, I thought I would outline the four major parts of my retirement plan.
- 403(b)/401(k): Starting this next year, both my wife and I will be eligible to start our 403(b) retirement accounts with matching funds from our employers. While I don’t currently make a lot of money, my employer is quite generous with how much they match. My wife I and I will continue to contribute at least the minimum amount to maximize the matching funds from our employers.
- Roth IRA: We have already begun contributing to one Roth IRA and will start another one in the next 6 months. Starting next year, we should be able to contribute the maximum amount ($5,000 each) and maintain this throughout our careers. Our Roth IRA’s will be set up with in connection with our ideal retirement year in order to have the fund automatically adjust our asset allocation. Again, no need to worry about something that can be automated, right? Well, I think so.
- Real Estate: I also plan to start investing in rental properties within the next 5 years. My goal is to purchase three rental properties by the time that I am 35 (at the latest). In accomplishing this feat, I will be able to pay off the mortgages of these three homes by the time I retire (or shortly there after). This will then provide a great supplemental income.
- No Kids: This may sound like a strange aspect for a retirement plan, but my wife and I do not plan to have kids. Raising children can be quite expensive and keep families from putting away the necessary funds for retirement. By not having kids, we will be assured that we can maintain our cost of living and continue to save lots of money.
If all goes to plan, (estimating a conservative 6% return on IRA’s and 403(b) accounts), by the time we are 60 years old, our retirement income will somewhere near $100,000 per year. This is also not relying on social security still being around. While I am sure the concern about social security’s future will be resolved soon, I am not banking on this. If it is there when were retire, all the better.
Thus, the reason why I think I can get away with a relaxed retirement plan, using the automated allocating funds, and not spend my precious time researching the best stocks is all because we are saving more than the average family and living frugally. We live well below our wants and are happy to do so because it provides us peace of mind. By starting to plan now, it also allows us to not have to stress over the day-to-day details of maximizing our investments. Instead, we are able to spend the extra time on hobbies that we truly love (like blogging).
What do you think of my plan for retirement? How is your plan different?
retirebyforty’s thought: I think this hands off retirement plan is great for someone in their 20s. Early on it is much more important to just start saving and investing than which mutual fund to buy. Starting out with a target date fund is a great way to go. You can always adjust your investments later. I would suggest making your own target date portfolio with other index funds to save on the management cost. You can rebalance once a year and it shouldn’t take a lot of time. No kids is a creative way to save money and I think it will help with retirement in the long run since you won’t have to worry about college cost and other financial issue. Good Luck!