Our Plan to Retire in 8 Years | Financial Independence Retire Early | $1.9MM Target

welcome back to road to fire we're a family of three documenting our journey to fire financial independence retire early let's talk about our plan to retire in eight years this video is in collaboration with mommy trader her channel is all about documenting her journey to fire as well she will share her timeline and plan to hit fire within 9 years so please check the link in my bio for her details like always i will provide our detailed timelines where we hope to move and how much we need saved with horrible numbers like always so please hang with me now i plan to retire before my 40th birthday i'm 31 right now but my birthday is next month so i hope i can retire in eight years i keep saying i as my husband doesn't want to stop working but i'm okay leaving my current role in working on passion projects versus corporate america we basically have exactly eight years to really get serious on our road to fire but i think it's possible we've been tracking our numbers religiously for almost one full year and we are doing all the standard things to help us reach phi we invest in index funds we cut our expenses we have increased our income and yes we live below our means it's a simple formula and it's proven to work but what most people forget to add is this the only way you can retire early is because one key factor and that's compound interest compound interest will allow us to retire early let me explain but first what is compound interest compound interest refers to the phenomenon whereby the interest associated with a bank account loan or investment acronym increases exponentially rather than linearly over time the key to understand the concept is the word compound now compound interest is where the interest you earn on a balance in a savings or investment account is reinvesting earning you more interest as a wise man one says money makes money and the money that makes money makes money compound interest accelerates the growth of your savings and investments over time it's basically magic because we are long-term investors we get to see the full benefit of compound interest helping us reach by earlier than expected but it gets better the more you make the more interest you earn you are almost incentivized to never stop investing but albert einstein said it best compound interest is the eighth wonder of the world he who understands it earns it he who doesn't pays it so here's our retirement timeline or the key milestones in the next eight years that we'll like to achieve to reach our former phi i didn't want to get into the details here but this gives you a snapshot on our plans in the next few years outside of growing our investments but i know this is definitely bound to change now i can't forecast what our likes would be like in eight years but i can definitely try so in the next three years or about 2024 the plan is to be a hundred percent remote workers since the pandemic this has become more likely in both our fields i am currently a senior manager and the next roller stage would be the director level now i don't see many director roles being remote so i might have to stay at the senior manager level which is definitely fine because my end goal is not to be in corporate america after we become remote workers we want to begin working abroad to essentially relocate abroad we have narrowed down our list to six countries three within sub-sahara africa this will give us the ability to practice geo-arbitrage where our dollars will work further abroad and by 2023 we hope to have about 12 doors or six rental properties we will definitely be going at this a slow way we hope to buy one duplex a year and follow the 20 down rule without leveraging too heavily against our existing properties i am just not comfortable with that additional amount of debt and if all goes well we will retire or be work optional in 2029 and by 2030 i'll transition to my life's purpose philanthropy my ultimate goal would be working in the non-profit sector or starting my own non-profit or foundation while donating upwards to 50 of our income to those in need i would love to live the last few decades on earth solely pouring back into other people's lives this is the plan and what we are working towards but life happens so i know this is definitely bound to change so how do you calculate your future investments or timeline to help you reach phi first thing you need to know is your annual expenses which will help you calculate your phi number then you need to take your annual expense number and multiply it by 25 to get your overall phi or fire number this aligns with the four percent rule now once you have your phi number you simply need to plug in your current savings rate and your portfolio balances into an investment calculator now i had never done this before until now but it's a great way to understand your timeline and help you outline what adjustments or changes you need to make to speed up your progress to fi now when we ran our three scenarios which i will outline soon it was very motivating i knew it was possible to retire within 10 years or even sooner but after running the numbers it became all too real now take the time to walk through your scenarios by plugging in your numbers into any online investment calculator but first it's very important to outline what you anticipate the expected rate of return will be for your investments as no one can predict what the market will be like in the future you can only use historical numbers as a benchmark so i pull this chart from the motley full website and i use this for all of our future calculations this outlines the 10 30 and 50 year rate of return of the market adjusted for inflation because i'm relatively conservative we opt to use the 30 year rate of return adjusted for inflation which is about 8.3 percent for all of our calculations we put in 8 and i know 2020 and 2021 year-to-date has had double-digit growth but that's not the norm choose the right rate of return you are most comfortable with when running your numbers so here are the three scenarios we ran to help us understand how long it would take to grow our portfolio to 1.9 million dollars the 1.9 million does not include my son's college fund as his timeline is much longer than ours we outlined three pathways using the same initial investment but different monthly investing strategies and reviewed the outputs or numbers but before i jump into the parameters here's how i got our monthly investment dollar calculations this outlines all the potential investments we are making each month currently for pre-tax contributions we plan to max out both 401ks obtain our company matches and max out our hsa which is currently invested we then have been investing about six thousand dollars of after-tax dollars into the market this has been happening for the last six to seven months so if we are hitting all of our goals perfectly we'll be investing about eleven thousand dollars a month how insane is that now our company's contributions are relatively fixed but i was conservative on this number just to be safe on my calculations i always round down versus up when i'm doing these investment calculations for the first quarter this year we have hit this max but i know life is not perfect and we won't always be investing that aggressively so i opted for these scenarios because i am extremely conservative and the calculations we use role on a 12-month basis all three scenarios would start with an initial investment of 285 thousand dollars then i opted for three different monthly investing increments i went with seventy five hundred dollars eighty five hundred dollars and the last scenario will be ran at ninety five hundred dollars you can see that i did not run the numbers for the ten thousand nine hundred and fifty dollars because we have never had a perfect year and i doubt we'll have eight perfect gears back to back one thing these scenarios don't take into account is income increases as our income increases and we receive bonuses we are definitely expected to have higher savings rates and these are not accounted for in our monthly investments so i opted to not to make those adjustments and you'll see a fixed investment amount every month at these three different increments okay let's get into the numbers so here is scenario one i use the smart asset calculator for all outputs with an initial investment of two hundred and eighty five thousand dollars investing seven thousand five hundred dollars a month at an eight percent rate of return we'll have over 1.76 million dollars invested in about eight and a half or nine years now i opted for nine years as 2021 has already started and the calculator works on a 12 month basis so it's technically a few months over the calculations but this is all directional not exact in this scenario we had contributed over eight hundred and ten thousand dollars into the market and earned over six hundred and seventy thousand dollars in interest when i talk about the power of compound interest this is what i mean we earned almost as much as we contribute due to compound interest so in this scenario we'll have a million dollars invested by sometime in 2026. so this scenario seems like the most probable right now doesn't take an effect different changes or fluctuations with our income or reduce future expenses but because we plan to buy a property every year we'll need to shift some of our monthly investment dollars to our syncing funds to pay for the down payments so i'm okay with this path it is shy of the 1.9 million dollars we are targeting but with our passive income streams and our other side hustles becoming main hustles we'll be okay this means that in about five years we are potentially going to become millionaires now i don't consider myself a millionaire until my stock investments hit one million dollars it's just how i think personally okay so here is our scenario number two with the same initial investment of 285 thousand dollars but investing eight thousand five hundred dollars a month and an eight percent rate of return we'll have over 1.92 million dollars invested in this time frame this will get us to our fine emperor now in this scenario we'll have contributed over 918 000 into the market and earned over 718 000 in interest alone nothing sweeter than interest here now how long would it take us to become a millionaires if we invested 8 500 a month it'll take us a little over four years from now now seeing these numbers are definitely very motivating for us okay so here's the last scenario and a stretch run for us but still plausible if we hit all of our 2021 goals we'll be at this space in a bit ahead with an initial investment still at 285 thousand dollars but invest in a whopping nine thousand five hundred dollars a month and the same rate of return of eight percent we'll have over two million dollars invested into the market in this time frame this would be well over our phi number now in this scenario we have contributed over one million dollars into the market and earned over 768 thousand dollars in interest which is still mind-boggling now how long will it take us to become millionaires if we save at this pace it would take us a little over four years to get to that millionaire status now do i feel like this scenario is impossible no but would it be harder a lot harder of course but i would be banking on big bonuses and income increases or job hopping to help us get to this number scenario so after calculating all these scenarios i have been dreaming a little bit more about the future than before we have already started putting some cash aside for plans to buy property abroad because both my husband and i have contacts abroad we have already started the conversations with our lawyers and agents abroad to get things rolling on what is needed to buy land there but i have to be patient as i ran these numbers it's never about if we retire early but when but i'm not going to lie i want to retire my 30s so i can live my best decades or my latter decades helping others it's almost like a halfway point in life to help me shift my focus on what really matters to me overall now the next goal is to reach four hundred thousand dollars invested i will always find a way to take our big goals and break it into smaller goals it makes them more tangible this way now i'm not sure this is possible but i hope we can reach 400 000 invested by the end of 2021 this will keep us on track for scenario one and if we are able to get over that even better because it is known that the market is slightly inflated right now i'm not sure that it's possible that we'll see this number but as a long-term investor short-term goals are always just checkpoints to help us reach our long-term 5 goals so i won't stress over it but what goals do you have for your investment portfolio this year share them below in the comments now if you made it this far thank you so much for watching but don't forget to like comment and subscribe below until next time

Channel: Road to FIRE

Views: 280,281

Keywords: Our plan to retire in 8 years, financial independence, fire movement, personal finance, retire early, save money, debt update, financial independence retire early, financial independence motivation, financial independence retire early fire, retire early fire, early retirement, how to retire early, how to calculate your fire number, the 4% rule, the 4 rule for retirement, how to retire young, our fire number, investing for early, investing for early retirement, frugal living

Id: WScd62Xjh6I

Length: 12min 19sec (739 seconds)

Published: Sat Apr 24 2021