One thing I would like to caution super-early retirees on is to allow some slack in your budget for increased health expenses as you get older. A generous safety margin should cover most such contingencies. Canadian Dream January 13, , am. Des January 13, , pm. Nerode January 13, , pm. Are you perhaps being slightly hyperbolic here? As another reasonably well-paid Canadian.
Sounds painful, and seems to illustrate your example rate. For US readers, remember that includes health care. Heather January 13, , am. BMO bank in Canada just cut the 5 year mortgage rate to 2. If not, why not? This conflict leaves me gridlocked into inaction. No wonder people spend crazy amounts of money on houses. At least you can see your money. Perhaps financial pessimists are doomed to financial mediocrity. Heather — banks are complicated businesses, and they get to employ leverage on your deposits to get greater returns, plus they have various consumer fees, consultancy and brokerage stuff, and other profit streams.
You are correct — financial pessimists ARE doomed to mediocrity. This is still pretty good, because most people are financial illiterates, meaning they are doomed to the even lower level of Shitocrity. But with optimism and armed with just conventional knowledge, anyone can do better than inflation. James January 15, , pm.
Kudos for putting the spreadsheet out in OO format. That sort of thing is right in my wheelhouse. I believe the way MMM addresses this is to ignore the benefits of the second part, making them part of his Safety Margin. Essentially just a bonus.
11 Great Reasons to Carry a Big, Long Mortgage
These savings would have to be invested much more safely due to the need to eat capital in the short term, and any compound interest would be my Safety Margin. House would be safety margin, and if not needed, go to kids. MikeK January 13, , am. I then keep cutting back the years of income until the amount in the pre-retirement fund goes to zero at age By my calculations, it is just over 10 years away….
Like MMM says, cutting an expense and adding it to the savings has an amazing affect on the time required! MikeK January 14, , pm. Ensure that the income is inflation protected. This would mean dying with a sizable estate, but I believe it would actually mean that the required assets would be lower than other methods, if structured right. Agent9 January 13, , pm. This is the exact quandary I find myself currently in. Risk over 30 years can be spread out, not so with the 5 year. Many blue chips have yields around this level, and many I would consider sustainable.
Other people I have been talking to are also recommending this path. The numbers are less attractive though. Dividend yield growth can not keep up with inflation if you are spending the yield each year. Not sure what you mean. Just did a number crunch. If your assumption is correct then in 20 years the stock will be paying a dividend of 8. Inflation compounds as well. Gerard January 13, , pm.
A share may indeed one day pay dividends that are 8. Agent9 January 14, , am. Dividends as a percentage of current share price. I think I understand. Thanks for the clarification. El Beardo Numero Uno January 13, , am. I see every big ticket item in my collection differently now — would I rather have this item, or the cash I could get for it?
Meg January 13, , am. Thanks for the great post! Geek January 13, , am. Though the new job is a little too good for me to want to leave at the moment. John Cheever January 13, , am. That was a crazy figure for this reason.
My plan is to retire in 10 years at Also, I am single but if I settle down with a special lady and am able to split costs then my financial independence will come even sooner. Yes, I would be game for that as well haha! Alice January 13, , am. Education — Without the college degree I received via scholarship and the two Masters I earned with my employer paying for it I would have been in dead end, physically debilitating jobs or saddled with big school loans. That said, your plans should include getting and continuing with your education. Any plan needs to include some provision for catastrophe.
Marcia Frugal Healthy Simple January 13, , pm.
This was a great post. I am going to make it a goal to figure that out for , at least sometimes in the next month. That was very helpful. Matt G January 13, , pm. Every student that graduates from highschool should be required to create this spreadsheet from scratch, rather than books of useless facts that can be looked up on google in less than 5 seconds.
The math may be too simple. This model assumes an individual is making the same amount every year.
How Many Rental Properties Do You Need to Retire?
Your model works if it used average take home pay for the career opposed to using salary as a constant. MMM January 13, , pm. Nope — your example would just mean the person could retire even earlier. But despite the incorrect pessimism, you have cleverly discovered yet another one of the amazing MR. I make everyone assume that they will never get a raise. But then they do get raises. And everything ends up turning out even better than expected. Develop yourself to be tough enough for the worst, yet execute for the best.
JJ January 13, , pm. Some expenses grow more than others healthcare. In some years, expenses will be higher due to things like college expenses for kids, etc. Sorry if this is complainy pantsy. But what I have trouble with is the variability of expenses in the future. George January 13, , pm. The model expects that you are starting with a net worth of zero, and that your savings rate never changes.
This model, though, provides a good way to look at savings and some targets to strive for. JJ January 15, , am. I have only a vague idea of what our expenses might be in 10 or 12 years. We probably just need more cushion. We pay no universtiy education but we try to help them out in other ways ie. Also as they get older they start developing their own interests ie. I am pretty frugal but if they beg me over and over again like my 11 year old son did for two years to play hockey, then I will try to accomodate their requests. Also our groceries go up because they eat alot in I find after age Just my two cents here.
Brian January 13, , pm. Joe User January 18, , pm. Most mortgages have a clause for consecutive high inflation quarters allowing a raise in mortgage rates. Money Mustache January 18, , pm. But mine was from a small private bank that holds its own loans. Does anyone else have information that can confirm or deny this? However, we also have a world record i taxation, which makes the savings rate perspective ever so relevant. Ed January 13, , pm. Hi MMM, love your blog. Am I missing something? Yup, you sure ARE missing something! And this is after adjusting all of these numbers for inflation, so the amounts will pay for roughly the same lifestyle in the future as they do today.
Without the concept of money earning money, there would be no such thing as early retirement and no such thing as rich people. Both concepts would be impossible. Ed January 14, , pm. Thx for clearing that up. It is an interesting table. This might be an interesting place to start or combine with high dividend stocks. Yabusame January 13, , pm. My savings percentage has taken a big hit recently. Although the ultimate aim is to grow my income by multiples of what it was, it means taking a major cut in salary right now.
Nate January 13, , pm. If you know the percentage of your take home pay that you live on, then why does it matter how much you take home each year? It seems that your calculations are only a function of this percentage, not your take home pay each year. I tried to make it sound as simple as possible, but yet you have simplified it even further.
Fishingmn January 14, , am. Recently updated studies using the last few turbulant years have cast doubts about it and suggested numbers as low as 2. If the Safe Withdrawal Rate declines to even 3. MMM January 14, , pm. I understand the desire to be conservative, but I would still totally disagree with the idea of going for an even lower SWR. Fishingmn January 15, , am. Ari April 22, , pm. It might surprise you to learn that many of the portfolios studied did not even last that long!
The single biggest risk that retirees face is longevity risk. Dividend Mantra January 14, , pm. Your spreadsheet and chart simply reinforce what I already knew. I started my journey to FI at 28 and plan to reach it by Loved this article. I worked our stash out and all we made this year was 2. I am very new to learning all about investing and ERE, so can somehow help me out here.
Makee January 16, , pm. Hi Mr. Money Moustache! I stumbled onto your blog via Early Retirement Extreme. Your article inspires me to keep on saving by keeping the end in mind: not only am I working towards a comfortable early retirement, I also enjoy the peace of mind that comes from having a solid emergency fund. Makee January 17, , pm. Johonn April 3, , pm. How did you get that referral link from Mint. Money Mustache April 3, , pm. Last year I got the blog signed up for a couple of affiliate programs — if you want the inside scoop, feel free to email me through the contact button.
Commission Junction is a well-known one, you can visit that directly as well. Thanks for the reply, I see. RichUncle EL June 4, , am. Russell August 27, , pm. Money Mustache August 27, , pm. Thanks Russell! Yes, all articles their comments section active forever, so thanks for letting me know. So I replaced it with a. Captain and Mrs Slow November 29, , am. BTW I mentioned this to Derek in an email but almost no bloggers talk about saving.
So when I first read this I thought it was all BS!!!! Freeyourchains December 20, , am. We just measure what we see, experiment, and base understanding on what we discover. The vast majority of the Universe is a complete mystery to us. At Warp 8, you can be there in 3 seconds or 7 days, respectively. Thus achieving interstellar and intergalactic travel within minutes.
That is just a theory to get you intrigued in all these mysteries, that many people are unaware of, or will not ever question. Kyle April 19, , pm. Chris January 18, , am. Where should I be investing? Where and how should I be investing that money sitting in my savings? Money Mustache January 18, , am.
Hi Chris.. I started saving for retirement in I have perfect data on the dollar amount and date of every single retirement contribution I have ever made. I have saved for retirement pretty consistently since then, and that consistency has been affected only by things that would reasonably affect anyone. I was able to save a little more when times were good, and I had to save a little bit less when times were bad. This means that the average retirement investor tends to buy into the market more when it is up, and less when it is down. What that means is that after inflation, a reasonable investment schedule over the last twenty years would mean a performance of about 0.
The market is different than it was thirty years ago. It is volatile and automated, and trading programs chase each other up and down the board. Money Mustache January 19, , pm. Many stock market cynics do calculations like this based on the quote price of the index itself, while neglecting the real reason we own stocks: the flow of cash they provide in the form of dividends. If anyone has a better tool that can do the same calculation for a stream, let us know.
Most of my own retirement stock holdings were bought between and Not the cheapest years to buy shares, but not awful, looking at the market value today. You are right about the dividends. I knew about dividends and adjusted close, and wrote my library to use adjusted close.
At your response, I double-checked my library, and… it is using the non-adjusted close now. I re-ran my analysis using adjusted close. What sucks is that I have based many of my own financial strategies off of the previous numbers, so I have to rethink a lot of things. My retirement investing started on June 30, I did a Wolfram Alpha query for the inflation since then, and it came back with That works out to an APY of 2.
As of today, the APY of that approach would be 6. If you subtract inflation, that would be 3. Especially since when you look at my historical graph of APY rates, most of my data points are below 3. Judging by my graph, it would appear my median APY of monthly data points would be lower. I think a reasonable-but-conservative estimate would be 2. Using 2. Erich April 30, , am. John April 29, , pm. How do you plan to pay for long term care when you and your wife need it? Michal May 9, , am. Just a short question: if I pay mortgage on our primary house, does that count as an expense or saving?
Thanks in advance. Agent9 May 9, , pm. I like having a fixed living cost and more flexibility with investments for the extra cash. Having said that, when plugging in figures into retirement spreadsheets I leave out the value of my primary residence and just include all payments as expenses.
In fact, housing payments are a hedge against inflation with this method because we only use fixed rate mortgages. George May 9, , pm. The house itself is an asset, worth whatever the current market value might be. Payments to the mortgage are a combination of two things — interest pure expense and principal reduction which reduces the loan balance and is a form of saving.
So, I guess the answer to your question is that mortgage payments are both saving and expense. Except the expense portion is a lot larger at the beginning and goes down as you pay down the loan balance.
Stuart May 17, , pm. I think early retirement is a great goal to have, but I think some of the assumptions are a bit rosy. Who can forget ? Then Calamos cut their dividend from 14 cents a share to 9. Ok, the markets have come back, but it took five years and the interest rates are way down.
Calamos still pays 9. My point is that nothing is sure in life, and what you think is enough and safe might not be. I guess that means save more than you think you will need and spend less than you think you can. Maybe that will require you to work longer than you think you need to. You said who can forget ? Also, if you are in the accumulation phase, did not matter because you were not selling shares, you were buying them as aggressively as possible right? So the shares you had in have now fully recovered in price, in addition to the buying you did during that downturn has put you ahead.
Kat October 13, , am. Looking at trying to crunch the numbers for my husband and myself. I am wondering, do we count in the contributions our employers put into retirement accounts for us toward the percentage we are saving? David October 31, , am. Almost all of the comments above address the contribution side of what is proposed. The unstated assumption here is that your cost of living before retirement is satisfactory after retirement. In theory, it should be.
However, if you cut your spending so as to be able to contribute more, will you make your life less comfortable than you prefer? And then consider you will be living this minimalist lifestyle for maybe 60 or 70 years. No cable TV. No lattes. Really, there has to be consideration for the lifestyle required after retirement in determining the saving level. George October 31, , pm. The reality is quite the opposite. There are lots of people who spend tons of cash, but are miserable. Many of us have discovered that a simple life, with a few luxuries here and there, is far better than wasting cash on lattes and cable TV.
Netflix and home-brewed coffee are far cheaper and just as enjoyable. David November 2, , pm. Of course you are right, but what I was trying to point out is that the article seems to assume that the lifestyle you are living while you are working is the one you want to live after you retire.
If you make sacrifices i. Now when you are working, you may not have much opportunity for having coffee. My retired friends think it is great if they run into someone to sit down and have a coffee. They have the time to do this. But it is an expense they did not have while working. My point is that somewhere in this analysis you have to look at the lifestyle you want to live after you retire. Jason November 5, , pm. True, but you also can account for expenses you no longer have when you retire. This can also multiply if you were having to live in a higher cost area to be close to your job and can now move to a lower cost area.
If you still drove to work you can largely ditch your car outside special trips not possible on a bike, a huge savings right there. So yes, you might want a more expensive lifestyle in some ways after retirement, but you can also offset the shift financially by effectively reallocating your expenses from work needs to personal wants; a nice change!
Or just have a bigger safety margin. That, after all, is one of the fundamental principles of this philosophy. Exactly what standard of living requirements are worth sacrificing that much of your time or life? David November 6, , pm. All valid points, and you demonstrate my argument. I have a couple of friends nearing retirement who track everything they spend in detail, so as to know what they will and will not be spending after retirement. People also should not regard work only as a chore that has no redeeming benefit, and that you should get out of as soon as possible.
Work provides many benefits that are not financial. There are social aspects, educational opportunities, satisfaction with completing a project and so on. For example, I thoroughly enjoyed my first 23 years of work. I had the intention of working forever, never retiring. I got to meet lots of interesting people, do interesting things and play with the best toys in the land I worked in computing. I never could have afforded to buy any of the equipment we were running.
Be creative. This is your lifeline to each property. This provides security and access to fast cash for unexpected large expenses, i. It sounds counterintuitive to spend money upfront but if you ignore it, it can turn ugly later. This is why I routinely maintain my trees: to avoid damaging roofs, for safety reasons, and to prevent the larger expense of removing a dead tree. Routinely check your furnaces and conduct tune-ups to your air conditioner to increase the longevity of the units.
If you personally manage your properties, you have to be very proactive with marketing your property. If you have property managers, you also need to be very proactive in overseeing your tenant turnovers to mitigate vacancies.
Buy One Property a Year and Retire Early?
Treat them with respect and be a good landlord. They are paying down your mortgage and living in your units and you rely on the cashflow they are providing. That money keeps coming in as long as you own the property and have good relationships with your tenants. What are your risk management strategies? Were you successful at retiring early through real estate investing and staying retired? Send me your feedback:. Does that mean you have 9 properties? If so, how much is the average worth of these properties, and did you have any difficulties getting that many mortgages?
In the US, the limit is 4 usually. Sooner or later, I think the cash flow will be great for you as the mortgages stop getting paid off one by one. As for average worth, it fluctuates with the market… ranging from low K to mid K. As for getting mortgages, there are different financing strategies to getting more properties in Canada as long as your debt ratio is ok to the underwriters and you have a great broker who is a holistic thinker. I think in the US, it has gotten a lot tougher. After leaving my salary job, I finally found financing much more difficult. Thanks for sharing the strategies.
I was getting stress from reading your post. Rentals are definitely not for us BUT I know even with some up and downs, you will be in a great financial situation as each mortgage is paid off. Your cash flow will be amazing one day so more power to you dealing with 8 propeties!
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My parents have 5 rentals and one tenant who lived in one appartment for 40 years paid the entire mortgage. This tenant just moved out and the unit needs a new kitchen, two bathrooms, windows, rugs and 15 plus gallons of paint. Unit has been under renovation for 4 months so far. My parents have to dig into saving to cover all the expenses. My parents are stressed at times dealing with issues and with major expenses. We have tax free passive income from bonds to cover our expenses. It is like set it and forget it.
The only work I do for our passive income is to buy another bond as each one is called or matures. It is pretty much stress and work free. We will work at our IT jobs for at most more years to build up our pensions and then we will call it quit at We are striving for 3 sources of income and each source to cover all expenses so that we will be OK if one or two income streams are gone.
Great to hear you are investing bonds. What bonds do you invest in and where do you invest them? That is great news! And striving for 3 source of incomes makes it so much more secure AND very, very smart. We are from the US and we only invest in individual municipal bonds no bond funds from our State that pays tax free interest twice a year. We have NO money in the stock market. Although, we think we will be OK if we quit now but it is tough to walk away from a stable pay check. Our company is outsourcing so we hope we get a package which will allow us to start collecting the pension now instead of If we reach 55 then our pension doubles and the company will provide K to each of us for medical coverage.
You, RB40, FS, DM are very brave to quit your jobs so young and are very smart to generate enough income to break free! Our 3 sources of income will be munis, pension at 55 and K at Social Security at 62 but we are not counting that. I will use your rules of thumb with respect to buying close to par. Does that mean you loan the company whatever the par value is at that time slightly above or below ex: with an expectation that they will pay you interest annually at the coupon rate and return the value at par at maturity?
I am very obsessed with munis. Someone introduced and taught me how to buy munis over 6 years ago and bonds currently provide us with financial security. So, I am happy to share what we did to become FI. My wife and I are not stressed. We will either we get a package or work until In the worst case, we can quit if we had enough. You are correct. I try to buy bonds with yield to worst from 3. I try to get the best return. Also, buy what you know. Since prices changes every day and every year, You just need to be happy with the price of the bond.
In the future, I can sell the bonds if I need cash only if the market value is above my cost basis otherwise I hold them until they mature. The passive income generated from bonds is like my own personal pension. I would only put my money in CDs anyway. Since CDs interest rates are so low, munis are a great alternative for us. Tracy — this was a refreshing read. As an owner of real estate I can relate to so many of these points. If it happened while we were living in Spain last year living off savings I would have been majorly stressed.
I understand your situation, I fell into that with two of my properties, I had to drastically reduce rent to remain competitive. Good that you have your other income to rely on until your properties are paid off, smart move. How long have you been investing in real estate? Is it worth it? I think its worth it but I wonder how others feel risk vs reward.
This is an amazing, encouraging read and intimidating, too! You laid out some seriously helpful strategies here. Great groundwork for our possible future in rental property as potential income. Hi Ashlee, glad I can help. Please take a look through my posts, I have a lot of articles that will help you when you buy your first rental property. I love your little experiment of trying out retirement for a year and living off of your rental income. I think this is a great way to figure things out.
We just purchased a duplex a couple of weeks ago in addition to our current owner occupied duplex. Our eventual plan is to buy a single family home for ourselves and then have 2 fully rented duplexes so not as ambitious as your 9 properties but the thought of having those mortgages when making the leap to quitting our jobs years down the road is a little frightening.
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