I read a great article (http://the-military-guide.com/2011/01/03/how-many-years-does-it-take-to-become-financially-independent-2/) which basically showed that as increase your savings you also decrease your expenses which means you end up needing even less time to become financial independent. As a concept, it is hard to argue but it brings up some ideas specifically for this generation. Though my DH and I are only saving 14%-15% of our net income towards retirement we are spending about 14-15% towards paying off debt and an additional 4% towards our next move and our EF.
So does that mean it will take 39 or 26 years (or some where in between) for us to be financial independent? Do we say it will take 39 years until we pay off the debt and then we can claim the 26 years? What about the fact that we will likely need health insurance? To COBRA my husband's health insurance it costs more than $500/month. Once my husband graduates some of his student loans will be 6.55%. I would like to pay those off quickly but the loans at 5.75% and 3.75%(both mine and his) and the mortgage (4.75%) I would keep until the end. I won't need to pay those every month until I die (just 10-30 years) so how do I decide how much I need to be financially independent?
These are tough questions and because of the amount of debt most people our age have, valid ones. I see many bloggers either ignoring retirement, for our age range, or geared towards 40-50 year age range and ignoring the debt load. Our generation needs to save for retirement and we need to start younger than most of our parents because we won't have pensions yet we start in hole because of both student loans and the need for higher education. So how do you start?
There is no way I am saving 80% of my income but I don't want to wait 30 years for financial independence. I started by saving 10% of my income and as time passed and we increased our income we increased our savings. We now save 14-15% into our Roths but I don't want to stop there. I want to get up to 20% but for me, I'll wait until we have paid off the 6.55% student loans. This could take another 8-10 years but I am fine inching towards financial independence while still living well. Twenty-eight from now I'll be able to be saving over 30% but by then I'll be 55. I want to be able to retire at 60. But even with just saving 15% I could retire by 66. Do you think I can retire at 60 with my plan? What would you do different? What are you doing to save/invest towards financial independence?
Your plan sounds good. Personally I want to be financially independent far earlier than 60, so I am buying dividend stocks now that will hopefully increase their payouts for many years to come.
ReplyDeleteI think you could include the money that you are paying towards debt as part of your savings, because once the debt is paid off that money will go to savings and it will eliminate the expense of debt repayment.
And you are most certainly welcome to add my blog to your blog roll, I consider it an honour.