Set For Retirement at Age 30

The point I hope to convey in this post is that it does not take a large amount of money to set yourself up for a comfortable retirement if you start early enough. I am now two years into my five year “retirement” plan and while I can’t quit working just yet yet I could save no additional money for the next 30 years and I would still be prepared to retire at age 60.

Let’s run through the numbers. for my properties. I’ll assume that expenses are 45% of rents for every property which is conservative for my portfolio. This covers property management, rent loss due to vacancy, maintenance, landscaping, utilities not covered by tenants, capital improvements, insurance, and property taxes. I’ll assume for simplicity in this example that rent & expenses even out with inflation (typically rents grow faster than inflation) and for that matter all figures given in this article will be calculated after inflation so you can view in today’s terms. In total after refinances I have about $120k in capital into these properties.

4-unit Midwest
Rent: $2400/mo
Expenses: $1080/mo
Cashflow: $1320/mo

4-unit Midwest
Rent: $2200/mo
Expenses: $990/mo
Cashflow: $1210/mo

Ski Condo
Rent: $1600/mo
Expenses: $720/mo
Cashflow: $880/mo

5bd House Denver
Rent: $2000/mo
Expenses: $900/mo
Cashflow: $1100/mo

3-unit Upstate NY
Rent: $2600/mo
Expenses: $1170/mo
Cashflow: $1430/mo

Ok let’s see how we’re doing. To keep things easy I’ll assume that appreciation of rent and expenses equal inflation, as a result we can view everything as today’s dollars. At age 60 this would put me at $129,600/yr in gross rents with a total cashflow of $71,280. That’s pretty good! The best part of all is that I am cash flowing on these properties even while my mortgages are in place so I don’t need to wait until I turn 60 to start seeing the benefit. Given that these figures are using conservative assumptions and that I do not expect to spend more than $71,280 after inflation during my retirement I feel confident that I am already set for retirement.

When you are purchasing stocks, bonds, or other investment vehicles that produce fairly low cashflows and have large price fluctuations it becomes a theoretical exercise to determine how much retirement savings will be sufficient. Returns are also expected to be lower in the future than in the past for the stock market. Charles Schwab predicts US rates of return to be 7.4% with 2.2% inflation through 2028. From what I’ve read 5-6% seems to be a more common/conservative estimate, it’s also unlikely that you will hold a 100% stock portfolio right up until retirement so these estimates are generous.

(1 + 5%) ^ 30 = 4.3X. Initial investment of $120,000 at age 30 after inflation = $270,120. Cashflow @ 4% safe withdrawal rate = $10,804
(1 + 7.4%) ^ 30 = 8.5X. Initial investment of $120,000 at age 30 after inflation = $532,118. Cashflow @ 4% safe withdrawal rate = $21,284
(1 + 10%) ^ 30 = 17.4X. Initial investment of $120,000 at age 30 after inflation = $1,090,586. Cashflow @ 4% safe withdrawal rate = $43,623

If you base your retirement assumption on the stock market returning 10% and the market actually returns closer to the expected 5% you could have some trouble. It’s worth noting that the 10% return with a 15 year time horizon delivers less money than a 5% return over 30 years so regardless of the rate it pays to start saving early.

“The best time to plant a tree was 20 years ago. The second best time is now.”

By comparison with 3% appreciation on my portfolio it should be worth ~$1.5MM after inflation in 30 years while also providing me tax-sheltered cashflow that whole time. Not bad for $120k, most people could save that in a few years and invested early enough in solid deals that is all you need to do to retire. I wouldn’t need to sell any of my properties during retirement as the cashflow would be more than sufficient for me to live comfortably, allowing me to give away over $1MM to charities after I’m gone.

Anecdotally, most people I talk to believe the stock market is safer than real estate. Personally I prefer to invest in assets that I can have a direct impact on the outcomes and can easily predict my returns on any time horizon. I’ll keep plowing forward towards being able to retire early in a few years but in the interim I’ll gladly accept being prepared to retire at a “normal” age.

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