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My Hands-Off Retirement Plan

by guest on September 9, 2011 · 43 comments

in early retirement, goals and milestones, guest post, investing

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my hands off retirement plan

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.

My Approach

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!

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{ 39 comments… read them below or add one }

cashflowmantra September 9, 2011 at 2:31 am

I like this plan. Too few people think of or use real estate as a supplemental income stream. Having that income will allow funds in the tax-deferred accounts to grow as long as possible.

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20's Finances September 9, 2011 at 3:49 am

Thanks CFM. I certainly agree. Rental proprieties seem to offer so many benefits.

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MoneyforCollegePro September 9, 2011 at 4:58 am

The plan is similar to my own. I also have about a 35 year time horizon before I need to begin withdrawing, so I have a lot of time.

I plan to rely on index funds and dollar cost averaging for my hands off strategy. I want to make smart decisions, but also not be ruled by the whims of the market.

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20'sFinances September 9, 2011 at 6:07 am

@ CMF, thanks. I agree that rental properties can benefit you in so many ways!

@MFCP, I am glad to hear someone else with the same plan. I think smart decisions are important and yes, we have lots of time for it to recover.

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JL September 9, 2011 at 6:26 am

Having a kid has saved me a ton of money. No going out to movies, no going out to expensive restaurants, no overseas travel, no expensive drinks, (a pack of diapers is $9, two drinks at a bar downtown is $18 with tip.) Plus you get a tax credit, plus you get entertainment at home just hanging out with them and watching them grow up and you will find that going to the park on a Saturday for free is more entertaining than going to a concert for $50 per ticket. So if having a kid is your idea of saving money- rethink. Plus when you get elderly they may help you get around if you are unable.

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retirebyforty September 9, 2011 at 9:52 am

I think a kid is still quite a bit more expensive than having no kid. Daycare alone is a huge bill for us.
We are saving a lot of money by not going out, but I think baby RB40′s expenses cancel all that out and then some.
We love the little dude though and he’s worth the extra expense. :)

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20'sFinances September 9, 2011 at 8:28 am

Thanks JL for the response. You gave some very valuable points. I agree that it can save you money as a replacement for entertainment. My motivation for not having kids is not strictly financial. Also, we can choose to live frugally without kids as well.

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Secrets of a Financial Advisors Wife September 9, 2011 at 11:05 am

Your plan is great, you are definitely on the right track. But, I would not state that since kids are so expensive you should not have them. You need to be creative once you have them in creating cash flow. We purchased property at the birth of each of our daughters that will pay for our children’s long term expenses (college etc.). If you are just not a kid person that is fine. But, to not have them because of the cost is sad. The love and joy having children provide you no amount of money can ever substitute that for you. You and your wife are still young give it some time you may change your mind.

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20'sFinances September 9, 2011 at 12:29 pm

You are absolutely right. My intention is not to avoid having children because of the cost. That is just a personal decision that my wife and I made. I was trying to highlight this benefit.

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My University Money September 9, 2011 at 11:31 am

We have similar outlooks (I am also in my early 20′s and trying to put the right long-term plan together), but different goals. I want to have kids and retire early. As a teacher I will have a defined benefit plan in place for 55 (I’d rather the money were in my personal investment account, but oh well). I am using a similar investing method concentrating on savings rates and diversity. For my real estate exposure though I plan to invest in REITs as opposed to physical rental property. It is more tax efficient and even better, a much lower “pain-in-the-butt” factor. I’ve just heard and seen some terrible rental stories. I have enough trouble keeping up the maintenance in my own yard, nevermind 3 more!

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20'sFinances September 9, 2011 at 12:31 pm

Thanks MUM. REITs are something I am going to consider as well. I need to do more research. :)

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krantcents September 9, 2011 at 12:43 pm

I owned rental income properties for years, it is a great source of wealth. It is also much more work than just investing in stocks and bonds. One of the best things about real estate is it is taxed at capital gains rates.

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MoneyCone September 9, 2011 at 1:22 pm

Time is your biggest friend! The earlier you start investing, the better! I actually like your approach!

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20's Finances September 9, 2011 at 3:45 pm

Thanks MoneyCone! I like it too. :)

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The College Investor September 9, 2011 at 5:24 pm

I still have more years to wait before I retire but I am already making my plans as early as now, which we will start when all debts and loans are paid off,hopefully mid-2012. Thank you for the ideas!

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SB @ One Cent At A Time September 9, 2011 at 7:43 pm

I did start early, problem is it was in my home country and when I came to US I started from 0 at the age of 30. I wish I would have come here much earlier by now I would have saved to down pay for my first home. Saving early gives you financial freedom quiet early.

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20's Finances September 10, 2011 at 5:52 am

Yes, sometimes it doesn’t always happen as we want. The fact that you are wanting to save puts you ahead of so many.

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retirebyforty September 10, 2011 at 11:38 am

What country did you come from? I know it’s difficult for immigrants. My parents came to the US in their early 40s.

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Briana @ 20 and Engaged September 9, 2011 at 9:36 pm

Great plan Corey. I want to keep it similar, with the exception of no kids. I don’t want the stress. I want it streamlined and automated.

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Financial Samurai September 9, 2011 at 9:41 pm

It’s a good plan. It’s easier to be optimistic younger. It might just be a little more difficult as life happens.

All good though. Just save beyond those plans!

Sam

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20's Finances September 10, 2011 at 5:53 am

Thanks Sam. I hope to save as much as possible (while enjoying life as well). Only time will show how much this plan changes.

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Ben @ BankAim September 10, 2011 at 10:55 am

To each his own.. but having kids is such a blessing. To watch them grow up, go to school, get married and have their own families is worth more to me than money in my bank account. In the end money doesn’t matter when it comes to family. My family and I plan on buying a few ‘rental properties’ also as a form of retirement savings.

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20'sFinances September 12, 2011 at 1:18 pm

That sounds like a great plan. Yes, I certainly understand what a blessing it is (at least partially). It is more of a lifestyle decision than strictly financial. But, it does have a financial impact. :)

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Market Maker September 10, 2011 at 11:28 am

My wife and I have been thinking about going the “no kids” approach. We’re getting a little bit older so it’s coming to that time where we need to make a decision but we haven’t just yet. Financially it makes sense but not all things come down to finance.

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Buck Inspire September 10, 2011 at 12:11 pm

Well written and thought out, nice job! I wish I was as wise as you when I was in my early twenties. It sounds like you are dead set against children, but down the road, could your feelings change? If it does, since you and your wife are good planners, couldn’t you modify your plans to handle it?

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retirebyforty September 12, 2011 at 9:53 am

Accident does happen sometime. :D

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20'sFinances September 12, 2011 at 1:19 pm

As retirebyforty said it, accidents do happen. We certainly could change our mind about it and I am sure I would be able to handle it. :) We are pretty good at living frugally.

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inq September 10, 2011 at 8:24 pm

good one. do you not plan to invest in after tax accounts? DRIP is good there and you have the liberty to take out money. 6% growth depends when you start investing and take out money.

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Kellen September 11, 2011 at 9:59 am

I’m a big fan of investing at the right asset allocation and holding it too. I know a lot of people advocate trying to time the markets, but I’m still skeptical that this can really be done without a lot of luck, and also most of us have better things to do with our time than to spend our evenings doing in-depth investment analysis (like we could be generating additional side income instead.)

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retirebyforty September 12, 2011 at 9:58 am

I’m terrible at timing the market. It is much easier to consistently contribute and let dollar cost averaging work for you. That’s my strategy.

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Funancials September 11, 2011 at 11:03 am

Very good post. As long as you have “a plan,” I think you’re okay. Too many people think of retirement as just a dream nowadays.

It’s a bit confusing to say “I don’t want the difficulty of having to worry about transferring money to a mutual fund” and then follow it with “My goal is to purchase three rental properties by the time that I am 35.” I love the idea of rental properties, but to think they are less of a headache than mutual funds?

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retirebyforty September 12, 2011 at 9:59 am

That’s absolutely true. Rental properties take a lot more work than investing in mutual funds.

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20'sFinances September 12, 2011 at 1:28 pm

Very good point Funancials. Rental properties do take a lot of work. There is the option of hiring a property manager as well. I particularly like rental property because of the leverage factor. I am able to invest in more properties with little money as an initial investment.

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Darwin's Money September 11, 2011 at 6:40 pm

To the commenters who think it’s cheaper TO have kids than not, I’ve been both with and without kids and it’s no contest. Kids are a few hundred grand to raise to 18, then another 100K just to get them through a state school. Then there’s weddings, helping them with their first home and everything else. Don’t get me wrong, I’ll never regret kids because it’s got nothing to do with money – we’d make our personal lives work no matter what. But they’re damn expensive. I love ‘em, but there are certainly sacrifices to be made.

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retirebyforty September 12, 2011 at 10:03 am

There must be a cheaper way to raise the kids. If it cost 300k to raise a kid, there would be anymore poor people in the US after a few more generation! :)

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Tim @ Faith and Finance September 12, 2011 at 6:21 am

Sounds like you’re on a great path – and early too! Keep it up, be ready for road bumps with healthy emergency savings and you should meet your goals!

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Matt Wegner @ Financial Excellence September 12, 2011 at 1:41 pm

I have a very similar retirement plan except that I’m not too interested in target date funds. I’m ok with a little (or a lot) of volatility and risk. I’m sure that will change as I get closer to retirement.

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RH January 8, 2012 at 12:06 pm

Great plan, seems like you are on the right track, I particularly like the idea of no kids, they are very expensive and time/energy consuming, I’m sure they are satisfying for some parents (most of the time anyways if they dare to deny it in public…), but they are also very environmentally unfriendly, according to a study by Oregon State, “carbon legacy and greenhouse gas impact of an extra child is almost 20 times more important than some of the other environmentally sensitive practices people might employ their entire lives”…
Money aside, there are plenty of other reasons not to have kids.

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retirebyforty January 9, 2012 at 8:52 am

That’s why people are having less and less kids these days. It is difficult to go against nature, but if you are happy with no kids, then that’s the way to go. We have one kid and we are happy with our decision. ;)

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