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How to Fund Your Early Retirement


How to Fund Your Early RetirementEarly retirement sounds awesome, but how do you pay the bills? Many financial planners recommend saving 10% to 15% of your income for retirement. That standard plan should enable you to comfortably retire in your 60s, but it will be practically impossible to retire early. You will have to think outside of the box if you want to quit your professional career earlier.

There are many ways to fund early retirement, but the truth is you’ll have to figure out your own special formula. There are the basics, of course. Here are 7 ways to achieve financial independence and anyone can follow one or more of these paths to early retirement. I think the most important point is to figure out what early retirement means for you. For me, early retirement means quitting my engineering career and becoming a stay-at-home-dad/blogger. I’m still working part time on my blog which earns a little income every year. It is motivating to work a few hours every day on something I enjoy. Some people don’t think that’s retirement and they are entitled to their opinion. I love my life and I call it early retirement.

Why work part-time?

There are many reasons to work part time. The biggest reason is that working on something you like is good for you. It gives you a reason to get out of bed and it will keep boredom at bay. Boredom is a huge problem for many retirees. They quit working and they feel disconnected because they don’t have any long term goals.

*Enter to win a copy of Victory Lap Retirement so you can read a whole book on this subject. I highly recommend this book for anyone looking to get away from the rat race.

Working part-time is also a great way to help fund your early retirement. I retired in 2012 when our net worth was nearly 30x our annual expenses. However, I didn’t want to start drawing down our retirement fund yet. We will most likely be fine financially if we withdraw 4% of our net worth, but I could be retired for 40 to 50 years. That’s a very long time and a lot of things can happen. It is safer to put off withdrawal as long as possible. This is the brief summary of my original plan.

  • Age 20-40: Work full-time and save as much as we could.
  • Age 40-60: Work part-time and avoid withdrawing from our retirement accounts.
  • Age 60-??: Start drawing down our retirement accounts.

The beauty of this plan is that we saved and invested early in life so we could take full advantage of compounding. (Compound interest) Once we saved a good amount, we could transition to part-time work and stop saving. The key here is to leave the retirement accounts alone and let them grow until we’re 60. This is much safer than starting withdrawal in our 40s.

How we’ll fund our early retirement

Okay, so the plan is to work part-time on something we enjoy. However, is that enough to fund early retirement? I love being self employed, but my earnings dropped by a huge amount after I left my job. I couldn’t fund our early retirement alone through part-time income. We have been doing very well financially because Mrs. RB40 still works, but she is planning to retire before 2020. We will need to figure out how to pay the bills before she can retire. Here is how we’ll fund our early retirement.

  • 50% from part-time work/side hustles.
  • 25% from our dividend portfolio.
  • 25% from rentals and other investments.

That’s pretty straight forward, but we may not get there by 2020. It’s also prudent to plan for the worst case scenario. What if Mrs. RB40 quits in 2017? Can we both retire and live comfortably? Let’s crank the numbers.

2017 Contingency Plan

Annual Expense – $4,500/month

Currently, our annual expense is under $55,000 and we should be able to maintain this level for at least few years. My biggest concern is the cost of health insurance. Currently, we’re covered under Mrs. RB40’s employer sponsored plan, but we will need to pay for our own health insurance after she retires. Here is the good news. I just checked the healthcare marketplace and we could get a silver level family plan for about $300 per month with subsidy. That’s not bad at all and it won’t be a big impact to our annual expenses. We’ll keep our monthly expense budget at $4,500 for now.

Income Sources

Let’s look at our income sources in 2017. Our most stable sources of income are my online income and our dividend income. These add up to about $3,500 per month. They should be dependable for the next few years.

  • Online income: $2,500/month (55% of expense)
  • Dividend Income: $1,000/month (22% of expense)

We have other income sources too, but they are not very reliable.

  • Rentals: $700/month. Our rental properties aren’t a reliable source of income. The problem with the duplex is the age of the property. The home is 125 years old and there are expensive repair and maintenance projects every year. In 2017, we’ll need to paint the exterior and that would wipe out most of the income in one fell swoop. Our rental condo is cash flow neutral so we won’t make any money there, either. We plan to cash out from the rentals eventually, but it will take a while to exit these investments. These properties are appreciating nicely, though.
  • P2P lending: $70/month. I don’t think we can count on uncollateralized P2P lending. I’m going to pull out of P2P lending in 2017 and try real estate lending. From what I heard, RealtyShares is a good place to invest. We have $10,000 invested here so it’s not a huge percentage of our net worth.
  • Side hustles: $100/month. Some months are slow on the side hustles. I think we could ramp up this income once Mrs. RB40 retires from her full-time job. We could both tackle more side hustles and make more money as needed. Mrs. RB40 is on an email list that announces a lot of temporary job openings that she could do. I don’t think it would be difficult to generate $500 to $1,000/month from side hustling.

So we have about $3,500 of dependable income and we’re iffy on about $1,000 per month. The income from other sources isn’t steady right now so we can’t count on them. If Mrs. RB40 retires in 2017, we would need to fill that gap with some withdrawal from our Roth IRAs. I prefer to avoid withdrawal from our retirement accounts, but $1,000 per month is very small. It is way lower than the 4% safe withdrawal rate and it should be relatively safe.

Roth IRAs

Why withdraw from our Roth IRAs?

  • We can withdraw the contributions in our Roth IRAs without paying the 10% early withdrawal penalty. Currently, we have about $175,000 in our Roth IRAs and a lot of that can be withdrawn without penalty. Your contribution to the Roth IRA can be withdrawn at anytime with no penalty.
  • Once Mrs. RB40 retires, we can start building our Roth IRA ladders. We will transfer a portion of our traditional 401k to our Roth IRA every year. After 5 years, we will be able to access this fund without having to pay the 10% penalty. You can read about it more in this article – Build a Roth IRA Ladder to Minimize Taxes in Early Retirement. I plugged some numbers into the H&R Block tax software and we can rollover about $40,000 in 2017 without increasing our tax. Affiliate link to Amazon above. It’s never too early to start doing taxes. 😀
  • I will funnel most of our part-time income into our 401k. This will increase our deduction and help control our taxable income. Decreasing our taxable income will help us qualify for the healthcare subsidies. Also, we won’t pay any tax on our dividend income if we’re in the 15% tax bracket. Minimizing taxes is very important because it is one of the highest expenses you’ll have.

The Roth IRA is our buffer account. It’s a way to access our retirement fund while avoiding the 10% early withdrawal penalty. The plan is to rollover our 401k to our Roth IRAs a little bit every year. By the time we’re 60, most of our retirement asset will be in the tax-free bucket.

This is getting complicated and I probably should write a post just on this. Meanwhile, here is a diagram I made.

Be Flexible

As you can see, we will need to be flexible when Mrs. RB40 retires. We will withdraw from our Roth IRAs as needed and this will help cover the gap from our dependable income sources. Also, we could both work a little more to increase our part-time income as needed. Another option is to decrease our expenses. Once Mrs. RB40 retires, we will be free to move to a cheaper location if we need to. Portland is getting more expensive and Oregon isn’t a good state to retire in because we have high state income tax.

Anyway, that’s how we will fund our retirement if Mrs. RB40 decides to push up her early retirement deadline. We will need to withdraw about $12,000 per year from our Roth IRAs, but our accounts should be able to handle it. Eventually, we will sell our rental properties and move most of the money into dividend stocks. Once we’ve done that, our dividend income should be able to cover the other 50% of our annual living expense.

What about you? How will you fund your early retirement?

Looking for an easier way to manage all your investment accounts? Try using Personal Capital for free to keep track of your finances. Personal will aggregate all your accounts and give you a great overview of your savings and investments in one place.

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Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, the job became too stressful and Joe retired from his engineering career to become a stay-at-home dad/blogger at 38. Today, he blogs about financial independence, early retirement, investing, and living a frugal lifestyle.

Passive income is the key to early retirement. This year, Joe is increasing his investment in real estate with CrowdStreet. He can invest in projects across the U.S. and diversify his real estate portfolio. There are many interesting projects available so sign up and check them out.

Joe also highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help DIY investors analyze their portfolio and plan for retirement.

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{ 63 comments… add one }
  • Great Indian Retiree November 12, 2016, 5:04 pm

    Wonderful article Joe and good to see all the progress you’ve made on this.
    My plans are similar, but well paying side hustles are harder to get in India (where I plan to retire). The saving grace in my case is that my wife enjoys work and plans to keep working for as long as possible. Otherwise, dividends, rental income, and interest from deposits/bonds (upwards of 7% in India) will help nicely.

  • Gopi Chandra November 3, 2016, 10:28 am

    Can someone suggest how to get started on the Side hustles?
    I am planning to earn a modest income of $100/month. Is it possible?
    I have some expertise in Financial topics.

  • Your First Million November 2, 2016, 3:47 pm

    I see things a little bit more like this:

    Age 20-40: Work full-time and save as you can
    Age 40-60: Work only on increasing you passive income by reinvesting the profits.
    Age 60-??: Live 100% on your passive income instead of drawing from retirement accounts.
    After Dead: Pass down your assets to your children so they can continue collecting passive income for life

    To me, having a large nest egg of cash in a retirement account does nobody any good. You are going to spend it on living expenses, probably with little or nothing to pass on to your family after you go. If you buy assets that will outlast you, you can pass on these assets to your children… and who knows maybe if you taught them well they will continue to grow the assets and/or add to them and continue building generational wealth.

    Just a different way of thinking.

    • retirebyforty November 2, 2016, 7:50 pm

      Sure, that works too. You won’t be able to retire early, though.
      It would be nice to pass on some assets, but I think a good education and a good start in life is plenty.

      • Your First Million November 6, 2016, 11:23 pm

        I actually disagree with this… I am 27 years old and have been buying 1-2 multifamily properties per year. Each one I currently own cash flows about $500-600 per month. At the rate I am going I should be able to quit my job in about 5-6 years. So maybe I won’t be retiring as a multimillionaire at 33 years old, but I won’t be working a 9-5 job… and will technically be a millionaire. I plan on continuing to buy properties at this rate, and hopefully faster as we continue to move forward.

  • Joe November 2, 2016, 11:58 am

    Best way to fund early retirement is to have the wife keep working and and receiving the employer health insurance benefits… 😉

    I insure my family through Obamacare. Silver plan (only 70% coverage) for myself, wife, and young child is $1400+ a month. We don’t qualify for subsidies since income is over $78k. I had appendicits this year, outpatient surgery came to over $70k billed… don’t know how much of that will be out of pocket yet.

    I’m amazed you can self insure for $300 for a family of 3.

    • retirebyforty November 2, 2016, 2:55 pm

      It’s strange why your rate is so high. What’s your age? Maybe it depends on the state. I thought $300/month was very low also. I put the income at $40,000.

      • Joe November 4, 2016, 9:11 pm

        We’re in California, I think rates must be near the highest here. What’s your rate without the subsidy?

        • retirebyforty November 4, 2016, 11:09 pm

          I think it was around $750. That’s high, but not as bad as I thought.

  • Abandoned Cubicle November 2, 2016, 10:22 am

    For us, it’ll be a mix of rentals, and investment returns on a small stash built over the last 1.5 years of working. Like you, the Mrs. will keep working, part-time, beyond my retirement- because she enjoys it. Our annual expense totals are very similar.

  • Jay @ ITF November 1, 2016, 7:15 pm

    Thank you for the very detailed breakdown on your finances. This is really eye-opening. I also think your definition of retirement is perfect. I think I’ll always want something to work on. And a finance blog seems like the perfect thing given my personal interest. So I guess you’re living the dream! 🙂

  • Britboy007 November 1, 2016, 6:20 pm

    I think health insurance is the biggest fear for most people wanting to retire early. I’ve had two minor operations in the past 18 months. The first one was billed at $75k and the last one a few weeks ago was billed at $35k. My obligation on both of those is practically nothing because I have great coverage and a very low monthly premium. It doesn’t seem that Obamacare is going to be viable in the future if insurers continue to drop out of the market. I have even considered moving back to the UK in my retirement just so that I can enjoy the benefits of socialized medicine.

  • Michael November 1, 2016, 9:58 am

    Both my wife and I have maxed out our contributions to 401k. Our income bracket does not allow us to participate in Roth IRA. The back door route to Roth IRA looks complicated, and what I heard was that filing tax returns gets even more complicated.

    I really like the Roth IRA ladder. We have been saving at a good rate. I had fixated on retiring at 60 . However, reading all the personal finance blogs, I am being strongly persuaded to retire sooner :). I need give it some serious thought now.

  • [email protected] Turtle October 31, 2016, 8:11 pm

    I have a long way to go before I early retire, but for now I’m throwing as much money as I can towards my 401k and IRA. I’m planning on doing the conversion ladder when the time comes.
    Once I hit FI I plan on downgrading from full-time and looking for something enjoyable and part-time. Life is too short and there are too many things I want to do, to be stuck working full-time until 65.

  • Mr. All Things Money October 31, 2016, 11:20 am

    oops, I meant side hustles not side hassles. Though the word hassle truly indicates how l feel about side hustles. 🙂

  • Mr. All Things Money October 31, 2016, 11:07 am

    We will be funding our early retirement income mainly from dividends with some cap gains as needed. Once we reach retirement age, our 401k/IRA/pension accounts will provide additional income plus whatever we can get from social security.

    I don’t have the temperament for side hassles or even a part-time job. Just want to enjoy life with passive income and not have to worry about working for money.

    • retirebyforty November 1, 2016, 9:28 am

      Enjoy your early retirement! Everyone is different. I know working part-time is good for some people. Mrs. RB40 for example. I don’t think she can ever really stop working. She is too much of a busybody. Keep me updated. I want to know how you feel in a year or two.

  • Tawcan October 31, 2016, 10:55 am

    We have similar plans as yours. You’re doing great considering you can generate so much online income. Definitely something I’m working on.

    I think the key is definitely being flexible and being open to part time work opportunities.

  • Finance Solver October 31, 2016, 10:25 am

    Part time job is so true. I have a mentor who recently retired and he is easily a multi-millionaire. During retirement though, he advises a few tech companies and does side projects here and there to keep boredom at bay. I haven’t figured out what I’ll be doing if I’m retired early but I have a lot of time to figure it out!

    I hope to fund my retirement account through hard-core savings..

  • Sam @ Financial Samurai October 31, 2016, 9:18 am

    Part time work has been GREAT in retirement! At one point for 3 months, I was making more consulting than my day job in finance. There is so much opportunity out there, people should NOT be afraid of running out of money in retirement. The opportunities are endless!

    You will regret more the things you don’t do than the things you try.


    • retirebyforty November 1, 2016, 9:26 am

      I’ll forward your comment to Mrs. RB40. Thanks!

  • Jo October 31, 2016, 8:54 am

    I just read that MMM makes $400,000 this year and since his expenses are only $25,000 he has more money than what he needs so he decided to give $100,000 this year to charities.
    It seems that we have a lot to learn from this guy…

    • retirebyforty October 31, 2016, 11:13 pm

      Yes, I read that too. It’s great that he is giving some of the income to charity. Amazing what he did with his site.

  • Shawn October 31, 2016, 8:33 am

    I am late to the FIRE scene, but luckily I retired from the Military in 2010. I am currently working on saving a healthy emergency fund and then retiring on September 30, 2018 at the age of 47. I have scaled my budget down so my wife an I will be able to live off our passive retirement income.

    • retirebyforty October 31, 2016, 11:27 am

      That’s great! Thank you for your service. You have the military pension, right? That should help a lot. I think the key for you would be finding a part-time job you enjoy. Maybe figure out a way to start a one man business. Good luck!

      • Shawn October 31, 2016, 12:14 pm

        I do have the Military Pension and Tricare for Health Insurance, so I am set with those. My wife has Multiple Sclerosis and was a school teacher. When she became disabled, she was eligible to start receiving 25% of what her pension would have been immediately. If I have everything planned correctly, we should be able to keep our same lifestyle and live off just the retirements and still have about $900 left over each month.

  • Fiscally Free October 31, 2016, 8:15 am

    I wish I knew exactly how we were going to fund our early retirement. My wife would certainly be a lot less stressed.
    We should be fine, but I need to figure out how to deploy the money we make from selling our house in a few months. I don’t feel like the stock market is a good value right now.

    • retirebyforty October 31, 2016, 11:26 am

      I don’t like the stock market either. It’s tough to add a lump sum right now. How about a rental property?
      Good luck!

  • Nicki October 31, 2016, 8:10 am

    I like the general guidelines you offered, Joe. For my husband and I, we worked for employers/a corporation until our mid-30s, now with a portion of our savings we are purchasing the business my husband works for.
    This wasn’t in the original plan, but will work out well for both of us in that it will provide a part-time job for us both. Without savings toward FI we would have never had the money to take on the business. What I do love is that even if the business doesn’t do phenomenal, we have very nice 401ks and roths that will grow and be there for us at 60. In seeing my parents and their friends retire, I realize how extremely important it is to ensure that even part time work is an option at 60.
    Kudos to you all the contingency plans, I wonder if this will change your wife’s mind about work in 2017;)

    • retirebyforty October 31, 2016, 11:25 am

      Good luck with your business. I hope you don’t get stressed out too much. I’m reluctant to take on a business because I think it will be too much work. I’m getting lazy in my old age. 🙂

  • Mr. PIE October 31, 2016, 7:09 am

    We will have a decent sized pension as income floor. That will serve as the foundation. Dividends from the taxable portfolio ( this part of our portfolio is about half of our total portfolio) will add to that. Finally, selling some small amount of assets from the taxable brokerage account will round it off. We should be well below the 4% rule. In fact, closer to 2% to meet our expenses for a family of four, including two kids aged 11 and 9. We have no plans right now for any Roth ladder or exotic ways (72t distribution) to access the tax advantaged accounts.

    Side hustles may emerge such as consulting in the biotech sector for Mr. PIE and perhaps taking advantage of the exquisite cake making and decorating skills of Mrs. PIE for some high end birthday and wedding cakes. But only if that interests us and it does not eat into our travel or leisure plans. Certainly not for the money.

    • retirebyforty October 31, 2016, 11:22 am

      I think pension is the best way to go if you can do it.
      2% is really good. The Roth IRA conversion is probably not ideal in your situation because you have pension income. You never know, though. Try plugging the numbers into your tax software. You might be surprised.
      Your side hustles sound interesting. I should pick up some new skills.

  • Mrs. Picky Pincher October 31, 2016, 7:06 am

    I completely agree. People want a checklist of things that can ensure their early retirement, but the journey is different for everyone. I think our retirement goals are very similar: I would LOVE to be able to stay home and continue working on my blog all day, since that’s what I’m actually passionate about.

    I find your plan pretty intriguing! I think the plan is to allow those traditional retirement accounts (IRA/401k) to grow over time while you live off of investment dividends in the meantime. But I do agree that meaningful part-time work is great to supplement income as well as giving you something fun to do with your time.

    As far as funding my own retirement, we’re diversifying. Right now we’re contributing to IRAs and 401ks to use once we’re eligible for retirement. In the meantime, we’ll live on part-time income as well as investment dividends. I do think it would be fun to have rental income properties, but as you’ve said, these can be unreliable.

    • retirebyforty October 31, 2016, 11:20 am

      Working on the blog all day is not good. That’s too much time in front of the computer. I think 2-4 hours a day is perfect. 🙂
      Rental properties are really good for a lot of people. I’m just not a very good real estate investor…

  • Alberto October 31, 2016, 7:03 am

    Love your thought process. Thinking about the problem correctly. Although the plan sounds more like a problem statement.

    Your plan premises are good. If you are in your 40’s, 40x expenses and so forth.

    Your assumptions like Healthcare at $300 a month are unrealistic and most likely won’t hold in the marketplace. This is the biggest challenge facing our country today.

    The reliance on dividends as income is risky and complicated. Exposes you to market conditions and fails the test of simplicity.

    Expenses at $55K looks low and does not account for inflation which means your expenses are more likely to go up with time.

    Differently, I would rely in bonds (love muni-bonds and 5% return plus tax exempt) for stable income and annuities (if you do not have to defined pension plan). Continue to work part time is the ultimate risk mitigation step and is healthy to some degree. Given a choice I rather work on health and living. Living includes working or experiencing things in the world.

    Suggest a Monte-Carlo simulation to see where you fall a a 40 or 50 years scenario. From the optics, you look good.

    Interestingly your numbers look and sound similar to ours and others. Meaning we are all in the right track.

    About the rentals. We have 40% net profit which is like your return. Rentals look good for balance sheets and net worth but do not be confused. It is an investment and has risks associated with it. Ours were built in 1989 and we did a job investing and maintaining them. We set aside or account for monthly a small amount to pay for taxes and repairs. We use this account to pay for taxes for all our properties. Even so we will need to set aside $20K to $30K for renovations if we ever decide to move back in.

    We cover 80% of our expenses with my pension and 20% with rental income and savings.

    Mrs. Alberto continues to work part time her real estate business that contributes so far to our travel and paly expenses. My plan does not rely on her income.

    We had set aside or early mark 7 years of the 20% expenses to cover us if we decide to differ social security to full retirement age. Our analysis shows that is better to take it early instead so in about 18 months, we would have 100% of expenses covered with pension and social security. We would address travel, play, and inflation with savings and dividends. My pension is not inflation adjusted.

    For early retirees, an annuity of about $1M with inflation adjusted would do better.

    FI to me is more about fullfilling my dream to wake up late in the AM and walk to breakfast with my 33 years running bride to breakfast as we have a conversation and about things. We like each other. No stress. No worries. Peace of mind. Food for the soul.

    • retirebyforty October 31, 2016, 11:13 am

      Thank you for your input. I tried Monte Carlo simulations in the past and it always look good. I think the ROI assumption is a bit high with those simulations. Municipal bonds sound like a good way to go. I’ll add that to our portfolio as we get older.
      We’ll probably spend about $50-$75 to remodel when we move into our duplex. We’ll probably refinance when the time comes.
      Your plan looks fool-proof. Enjoy your early retirement!

  • Jeff V October 31, 2016, 6:56 am

    Given that your online income is at $2500, you are in good share relative to your spending. Something like this is what I need to develop; an income stream separate from my regular paycheck. Something online, a semi-absentee franchise… something.

    • retirebyforty October 31, 2016, 11:09 am

      Keep trying different things. You never know what’s going to make money. The problem with full-time work is that you don’t have any time or much energy left to side hustle. Good luck!

  • Mike Drak October 31, 2016, 6:55 am

    Joe, because nobody told me about FI I worked much longer in the corporate world than I had to. That cost me in terms of health but on the plus side it gave me a stronger freedom Ratio which is after-tax passive income/non-discretionary living expenses. In simple terms my dividend cash flow is greater than my living expenses. My wife still works, she loves her job and I make “fun-money” from my book and seminars/speeches. I really don’t save anymore I just focus on spending my fun money on experiences for me and my family. Too bad I didn’t have benefit of your site years ago. It would have made things so much easier for me and I would have left the corporate world much earlier than I did. Keep up the great work Joe because you are helping a lot of people and it’s true when they say when you help others you are really helping yourself.

    • retirebyforty October 31, 2016, 11:09 am

      Thank you for the encouraging words. I think you are doing great works with your book too. It will help a lot of people learn about the FIRE movement.

  • Martin Stone October 31, 2016, 6:44 am

    Instead of funding 401(k) and IRAs which are 20+ years away from being used, why not divert all of your savings income (other than 401k match) into your dividend portfolio. That way, the money is available to you now. If you can grow it by another $300,000, then you can withdraw 4% for the $1,000 per month needed.

    • retirebyforty October 31, 2016, 11:07 am

      Did you see the diagram I made? This way, I’m saving on taxes now and eventually most of our retirement fund will be in the tax-free pile. We can withdraw from our Roth IRAs without having to pay penalty. There are ways to access your retirement accounts.

      • Martin Stone October 31, 2016, 3:59 pm

        Yes I understand the diagram. I have money in a 401(k), IRA and Roth IRA and hope to continue rolling money from the IRA and 401(k) into the Roth – so a similar situation to you. However, since I am already retired, I have the bulk of savings in dividend accounts. The problem with the other retirement accounts is that rules may change, your blogging income may increase significantly thus limiting your roll overs and hence limiting one of your planned sources of income the Roth. Plus you pay taxes on earnings made in the Roth account.

  • Jim @ Route To Retire October 31, 2016, 6:02 am

    As you said, the key is flexibility. We’re actually planning on using my 401(k) as the biggest funding for our early retirement. We’ll be doing that through a Roth IRA conversion ladder as well.

    In the meantime, we’re building up enough rental property that should cover most of our expenses during the waiting period of the conversion ladder. I might do some side-hustling or part-time gigs during that time if needed. After those 5 years, we’ll draw from the Roth, but probably in increments much less than the 4% since the rental income should carry us most of the way.

    — Jim

    • retirebyforty October 31, 2016, 11:06 am

      I love the Roth IRA conversion ladder. I just hope they don’t change the law on us. Great job with your rentals.

  • Dylan October 31, 2016, 6:02 am

    Curious why you are giving up on P2P. Personally, I feel like it would be better to double down on P2P right now due to lower expected returns for the stock market.

    • retirebyforty October 31, 2016, 11:05 am

      We’re getting about 8% from P2P lending. The problem is that the defaults will go through the roof when we get a recession. I’m just feeling bearish at the moment. I think real estate lending is better because there is a property associate with the loan. Uncollateralized lending is too easy to default on.

      • Gopi Chandra November 3, 2016, 10:25 am

        Don’t forget the principal that many prepay. You can consider this also as income (though your account value would deplete fast). My goal is to accumulate about $40K so that it would last about 10 years of retirement, assume you withdraw $500 pm.

  • Matt @ Optimize Your Life October 31, 2016, 4:52 am

    I think you are right that the key is being flexible. Having multiple plans is a great approach. I am still far enough away from retirement that I am just funneling as much money into investments as possible and planning on figuring the rest out later. I would love to be able to be able to work on creative projects after I retire without worrying about whether or not they will turn a profit. On the other hand, I have some side hustles that I could dial up if I wanted to switch over to part time paid work and there’s always the possibility that my creative projects start making money before I get to early retirement.

    • retirebyforty October 31, 2016, 9:37 am

      That’s great. The accumulation phase is nice. You don’t have to think too much, just save a big chunk of your income. I’m sure you’ll find some ways to exercise your creativity.

  • Apathy Ends October 31, 2016, 4:45 am

    I plan on earning after leaving a traditional 9-5 job as working for myself is a bigger goal than flat out retirement right now.

    I like your side hustle plan, as long as it’s on your own terms might as well grab some extra cash when you can.

    • retirebyforty October 31, 2016, 9:36 am

      I think self employment is much better than full time retirement too. We’re too young to stop working completely.

  • The Green Swan October 31, 2016, 4:18 am

    Sounds like a good plan and it’s great you are flexible with picking up a few side hustles and even moving to make it work. And I think you’ll be in amazing shape if you can avoid or take only $12k from your retirement accounts annually.

    For me, I’ll be relying entirely on my taxable accounts for the first five years or more and then I plan on accessing retirement accounts. At that point I won’t have any other income sources and hope to have those built up enough to sustain me through retirement with no need for part time work. Of course I’ll be flexible if need be.

    • retirebyforty October 31, 2016, 9:35 am

      At first, I was hesitant to withdraw any money from our retirement accounts, but $12k is very little. It should not impact our long term goals at all. Sounds like you’ll build a Roth IRA ladder too. That’s the way to go.

  • [email protected] Smarter Decisions October 31, 2016, 3:52 am

    I love the flexibility of your plans and the details you provide Joe. You have many “routes” to take as you move forward and I’m all about a little part-time work you enjoy to limit dipping into the retirement funds. My husband is 58 and retired and he has a pension. I’m 49 and have 5+ years to go until I can collect my pension. So we have a 5 year “gap” to fill. We have rental properties too – so we have some cash flow there. I teach a college class online, so that brings in some too. Luckily we have health insurance through my husband for the next 6+ years too. We will need to dip into retirement accounts next year and it won’t feel good, but neither will going back to work! It’s part of the plan – just not one that is “normal” to anyone other than the FIRE crowd!

    • retirebyforty October 31, 2016, 9:34 am

      It’s great that both of you have a pension. Your retirement is set. I really like your plan.

  • Jon @ Be Net Worthy October 31, 2016, 3:10 am

    Seems like you have your plans thought out pretty well. For me, my early retirement will be at a more traditional age of 55. At that point, I would take a pension and probably still work part time doing something. Maybe my blog or perhaps consult a few hours a week. I still have several years before then to figure it out.

    • retirebyforty October 31, 2016, 9:33 am

      A pension! That’s the way to go. I wish I have one.

  • Roadrunner October 31, 2016, 2:34 am

    This sounds like a solid and well thought through plan. I’m still at the very beginning of my FI journey, but once I get there, I’m planning to cover the expenses from the returns of the portfolio investments (50-50 equity/bond at that time), income from two rentals, plus if needed, then max 2-3% withdrawal from the portfolio. (If you’re interested in the details: http://www.theroadtoonemillion.com/searching-for-the-perfect-portfolio-conclusion/)

    I totally agree with you that any part time job you do for fun is not a job. It’s a nice way you spend your time and if it happens to generate some income, that’s only the icing on the cake 🙂

    • retirebyforty October 31, 2016, 9:32 am

      Sounds like a good plan especially if you can make the rentals work. I’m just not a very good real estate investor. We are making money via appreciation, but not much cash flow. 🙁

  • Mr. Tako @ Mr. Tako Escapes October 31, 2016, 12:53 am

    Well, Joe….our plans are kind of similar. We’re trying to put off withdrawing from our taxed advantaged accounts as long as possible.

    Unlike you, we don’t have the rentals, and my blogging hasn’t generated meaningful income. But, we do have some significant dividend income!

    I was hoping dividend income would cover 100% of our expenses in 2016, but I think it’s going to end up closer to 95% of our expenses this year — About $4k/month.

    I’m not even counting things like social security or inheritances into our plans right now. They could happen, but we’re not counting on them to pay the bills.

    • Dividend Growth Investor October 31, 2016, 8:03 am

      My goal is to be in a situation like Mr Tako, where my dividend income covers expenses. The goal for that is around the end of the decade.

      Having some side income is very helpful, as it will prevent me from dipping into tax-advantaged accounts for as long as possible.

      I think that Social Security would be helpful, but for us that would be something like 30 years down the road..

    • retirebyforty October 31, 2016, 9:08 am

      My long term plan is to move most of our taxable investment to dividend stocks. It is going to be a slow process, though. Hopefully, we’ll get there by the time Jr finishes high school. That’s in 13 years…
      Great job with your dividend.

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