Retire By 40?

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QueenB
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Joined: Mon Apr 24, 2017 4:08 pm

Retire By 40?

Post by QueenB »

I'm 19 going on 20. I just got a job offering lots of benefits including a 401k, I'm extremely new to investing, stocks and bonds. Not sure where to start and who to listen to, where should my money be going?i don't have a large income coming in, trying to move into an apartment while still being able to save a large portion of my income for retirement.
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MNGopher
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Re: Retire By 40?

Post by MNGopher »

If you plan to work for only 20 years, you not only have to cover your current living expenses, but also fund what could be a 50+ year retirement. You are going to need:

1. A good income
2. Live extremely frugally
3. Very good investment returns

While not impossible, it will be very difficult. Starting young is a great first step.
TravelGeek
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Re: Retire By 40?

Post by TravelGeek »

What's driving the goal of retiring by 40?

Welcome to Bogleheads.org!
bloom2708
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Re: Retire By 40?

Post by bloom2708 »

When you know them, list the available funds and their expense ratios in your 401k.

Save 40-50% of your income for 20 years and see what happens.Don't get caught up in buying stuff and things.

Spending time here will give you ideas and things to ponder.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead
Finance-MD
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Re: Retire By 40?

Post by Finance-MD »

Assuming your expenses don't change, you need to save ~36% of your income annually and earn standard market returns of 7% for the next 21 years; you can then live off of 4% annually which backtested should last you 30 years; with a 3% withdrawal rate, this should last for perpetuity, but you will need to save 42% of your income.

https://networthify.com/calculator/earl ... awalRate=4

Please read the wiki for info on investing -- but a simple vanguard target date retirement fund for a Roth IRA or a basic 3 fund portfolio in your work retirement is a great place to start.

The most valuable thing someone your age can do, however, is INCREASE your income. a 36% savings rate is very tough for most people if not making much money. If you increase your income 25%, suddenly that 36% savings rate is just that 25% increase and 11% of the original income.
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2pedals
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Re: Retire By 40?

Post by 2pedals »

Get Started Here

I recommend reading If You Can: How Millennials Can Get Rich Slowly - William Bernstein

20 years probably not, 30 years maybe.
Dottie57
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Re: Retire By 40?

Post by Dottie57 »

I don't think 20 year goal is doable. Find a job you love and work longer.
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arcticpineapplecorp.
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Re: Retire By 40?

Post by arcticpineapplecorp. »

QueenB wrote:I'm 19 going on 20. I just got a job offering lots of benefits including a 401k, I'm extremely new to investing, stocks and bonds. Not sure where to start and who to listen to, where should my money be going?i don't have a large income coming in, trying to move into an apartment while still being able to save a large portion of my income for retirement.
This (part in red) is part of the problem. To retire early like mr.moneymustache (http://www.mrmoneymustache.com) you have to have high income and low expenses. Mr. Money Mustache had a high income (was an engineer if memory serves) and lived very frugally early on (had roommates to share expenses), etc. Even now that he's retired early he's frugal as heck (doesn't pay for internet--lives in an area where it's free) and still worries about health insurance costs (it's his biggest expense I believe I heard him say on the dough roller money podcast). And he still works (writing on his blog), but he enjoys what he does now and the extra income stretches his budget but he's not "dependent" on it.

If you're living at home (you say you're trying to move into an apt) and you can tolerate that (you get along with your folks) then don't be in any hurry to move out. Having an apartment means you've increased your lifestyle. Now you have to find a permanent way to fund that. And so it goes.

So first figure out how much you want to save, and then try to see if you can live on what's left over. It's the opposite of what most people do. They pay themselves last. If you always pay yourself first you live below your means, need to make up less income if ever have a job loss, and ensure you always have savings for a rainy day. Warren Buffett himself says "Don't save what's left after you spend. Instead, spend what's left after you save."

If you have a 401k with matching money definitely put in at least enough to get every matching penny your employer is willing to give you. That's free money that compounds. A gift that is precious. Don't waste it.

Then after you get all the matching money from your 401k put $5500 into a Roth IRA (you don't get a tax deduction but it grows tax free when you withdraw it in retirement).

You probably don't have such low income that you qualify for an earned income credit but check out the saver's credit (many with lower income overlook this because it's not often mentioned) if you're not a dependent on anyone elses' tax return and not a full time student:

https://www.irs.gov/retirement-plans/pl ... ers-credit

I second the William Bernstein recommendation (If You Can) and not just because it's free (if you're not on kindle unlimited you can get a free copy here):
http://www.etf.com/docs/IfYouCan.pdf

You can also probably get a copy of Jack Bogle's "The Little Book of Common Sense Investing" at your local library. It's short but packed full of most of what you need. Again, it's free at your local library. That's one of the keys to success. Finding ways to spend less money. It's not being cheap...it's called "creative spending". And it will serve you well. You will learn in life that the hedonic treadmill is what keeps most people going. They're looking for the next thing that will make them happy and think they need to spend money to get it. Ever look at flowers as you're walking down the street? Makes you feel good, doesn't it? What does that cost you? Nothing. Look for the little things in life. Everyone who has a yacht has problems because they've got to pay to store, insure, maintain the yacht. And you know what? There's always another bigger better newer yacht to make yours look like an old dingy.

definitely check this out:
https://www.bogleheads.org/wiki/Video:B ... philosophy

Come back with more questions. Welcome to the forum!
Last edited by arcticpineapplecorp. on Mon Apr 24, 2017 9:30 pm, edited 1 time in total.
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
aristotelian
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Re: Retire By 40?

Post by aristotelian »

If you want to be financially independent, you need to save about 40X your desired income. So if you want an income of $100K, you should plan on saving about $4 million. Plugging that number into a compounding interest calculator, back of the napkin you would need to save about $80K per year over 20 years with an 8% average return. That doesn't count inflation, so you would want to save more as your salary increases.
random_walker_77
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Re: Retire By 40?

Post by random_walker_77 »

Pay yourself first, and save as much as you can. You're way ahead of the curve thinking about this now. In addition to the references above, read this to understand why it's so important to save and live below your means: http://www.mrmoneymustache.com/2012/01/ ... etirement/

At 19 or 20, the most valuable thing you have is time and your future earnings. Save what you can, but now is the time to invest in your income, to invest in yourself. Learn, study, train. Become really good at something that you like and can monetize -- preferably something for which demand is high and supply is relatively low.

If you end up with negative savings because of the size of your investments, so be it. Just make sure you have a plan. Good luck!
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ruralavalon
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Re: Retire By 40?

Post by ruralavalon »

Welcome to the forum :) .

In general: 1) avoid debt; 2) start investing young; 3) contribute as much as you can to investing; 4) keep expenses and taxes low. Read the little book that is linked in 2pedals' post.
QueenB wrote:I'm 19 going on 20. I just got a job offering lots of benefits including a 401k, I'm extremely new to investing, stocks and bonds. Not sure where to start and who to listen to, where should my money be going?i don't have a large income coming in, trying to move into an apartment while still being able to save a large portion of my income for retirement.
A little more information is needed.

Is there an employer match offered in your 401k? If so how much is it?

What funds are offered in your 401k? Please give fund names, tickers and expense ratios. If the list is very long, then just include the 4-5 funds with the lowest expense ratios.

Do you have any debt? If so what types, amounts and interest rates?

You can simply add this to your original post using the edit button, so that all of your information is in one place.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
pangea33
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Re: Retire By 40?

Post by pangea33 »

I didn't start saving early enough and I retired at 40. ...to my bedroom, so I could get up early for work!

Considering housing is one of the biggest expenses a person incurs, the advice about living with a family member upthread might be pretty useful.

If I wasn't married I'm convinced that I could spend at least a few years living in a Toyota-chassis, class-C motorhome with a gym membership to Planet Fitness for my showering needs. That's not a viable option in my case though.
J295
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Re: Retire By 40?

Post by J295 »

Perhaps you will make FI by 40. Dream big. I suspect at least one of our (now adult) children will be in that position. Most won't get there if there only income/asset source if from working for mega corp and saving/investing, but there are other ways to accumulate wealth (i.e. ownership in your own business, real estate, non-publicly traded assets, etc.)
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