Greetings from a millennial :) – My finances!

Q&A with a Reader

Hello Billy and Akaisha!

I hope you two are doing well! I just listened to you guys on the World Wanderers podcast and loved your story! Retiring at 38 is so unheard of and I’m so happy for you guys, that you’re doing what you love, 25 years later! I was inspired by your story, especially in how you both prepared for such a huge undertaking.  The reason I’m emailing is because Billy said he wanted to share his financial knowledge with millennials so here I am 🙂

So my husband and I are both working good jobs in San Diego making good money and have been for the past 2 years, and will continue to do so for the next 3 years. After that, the plan is to travel for maybe 1-2 years, to have adventures and to both volunteer and work abroad. I’m not sure exactly how long I’d like to do that, ideally indefinitely, but as of right now the plan is to go back to the states and continue working and putting money into our 401k.

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I’m very glad I heard your podcast because I liked hearing that you actually planned for 2 years before you quit your jobs. I hear all of these stories about young people quitting their jobs and traveling, though most of them either return back to work or stop traveling because it isn’t sustainable. One of the biggest issues that no one talks about is retirement  or a long term savings plan.

I’m 30 now, so I’m not fresh out of college or anything and I don’t have that much saved in my retirement. (I never understood it and only put the minimum match of 5% into it-I’m still only putting 6% into my 401k). So I’ve decided to not quit my job right now, but instead, to give myself 3 years to get my finances in order, save as much as possible, and plan our big adventure.

Billy mentioned that millennials should save and invest into index ETFs. For someone like me, who doesn’t really know what that means, I was hoping you could elaborate. As in, what percentage of your income (or 401k) would you recommend putting into ETFs? Do you have any recommendations on what else to invest in, like the bonds?

Another huge concern I have is how much to put into my 401k. Do you have recommendations on that? Did you guys try to get to a certain amount before you quit (or assume you’d need a certain amount to live off of for the next 50 plus years)? I have some savings in the bank that I really don’t know what to do with. Just throw it all into my 401k? Use all of it to invest into index ETFs? Use it for the big trip?

Knowing that I’m going to be quitting my job in 3 years, I’d like to use my savings wisely, and get my 401k ready. But if I’ll only be 33 by then, so I definitely won’t have enough in my 401k to retire – not that I’m necessarily trying to do that, but I guess overall I’m just interested in whatever recommendations you have on planning for something huge like this. I am definitely curious about what you guys did during that 2 year period and what I might be able to learn about and look into during my planning period. Please let me know if you recommend any books, websites, or articles, anything that may help me prepare for the scariest and also most exciting part of my life.

I so appreciate you taking the time to read my little bio, fears, and concerns. After hearing a bit of your story, I knew I had to get in touch with you guys so thank you for sharing it on the podcast. I’ve already learned something from you both, which is that it’s possible!  Especially if you have the right plan.

I look forward to hearing back from you and thank you, thank you, thank you for your time.

Sincerely,

Alexa

Hi Alexa,

Thanks for taking the time to write and we applaud you for taking control of your finances at this time in your life.

One of the first things I want to say is that Time Is on Your Side.

I might mention that in the 2 years we took to prepare for our early leave from the working world, we figured out how much money per year and per day we were spending on ourselves, minus the cost of working. We knew that we would not have the house payment either, nor would we be driving our car all the time, so we subtracted those amounts out. Eventually, we became Car Free saving thousands of dollars a year on transport.

The categories of highest spending in any household are housing, transportation, taxes and food/entertainment. If you make adjustments in any of these categories, then you will “find” more money to save and invest.

We tracked our spending and found out how much we needed to have in investments to generate that kind of annual expense. Experts say to have invested 25 times the amount of annual spending and that should do it. If you take out the safe withdrawal rate of 4% per year (leaving 6% to reinvest and cover inflation) you would not run out of money.

We then created a “Money Machine” mainly investing in equities – A money machine that grows faster than our spending and inflation. At your age we had 100% in equities and your risk tolerance may vary but I believe the stock market using Index ETF’s is the way to do this. As we aged, now 63, we have backed off a bit from the heavy exposure to equities, and currently are at 50%.

We cannot specifically tell you how you should invest as everyone is different, but in my opinion, you should increase your stock market exposure using VTI, Vanguard Total Market ETF.

An ETF is like a mutual fund that trades in real time as compared to receiving the closing price of the trading day like mutual funds. And they are very low cost to own. We currently hold VTI, SPY and DVY.

As far as adding to your 401K, sure, and you can use the same VTI for this. Money that grows tax deferred is a plus. In fact try to invest as much as you can both inside and outside of your tax advantaged accounts. Time is your greatest asset….. Use it.

When we retired in 1991 the S&P 500 Index closed at 312.49 and as of this writing it is trading at 2100 which is roughly a 7.8% average gain per year plus a couple percent for dividends.

I hope this helps and you, too, can gain financial independence.

Let us hear from you if you have any further questions.

Regards,

Billy

About Retire Early Lifestyle

Billy and Akaisha Kaderli retired two decades ago at the age of 38 and began traveling the world. As recognized retirement experts and internationally published authors on topics of finance and world travel, they have been interviewed about retirement issues by The Wall Street Journal, Kiplinger's Personal Finance Magazine, The Motley Fool Rule Your Retirement newsletter, nationally syndicated radio talk shows and countless newspapers and TV shows nationally and worldwide. They wrote the popular books The Adventurer's Guide to Early Retirement and Your Retirement Dream IS Possible.
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