Tuesday, September 8, 2015

The Point At Which I Can Retire

For most people, whether they are pursuing early financial independence or retiring at a ripe old age, deciding when they can retire is a big and serious decision.  You have to make sure that you have enough income to cover your expenses or that you have enough assets to draw down from until you pass away.  Those who decide to follow the 4% draw down rule need to make sure they have a well diversified portfolio of investments so that they do not outlive their nest egg.  For those who decide to retire from passive income, they need to make sure that their passive income will cover all their expenses.

My approach to retirement is a combination of both:
  1. Live off passive income in retirement via interest income, dividend income, and rental income.
  2. Live off distributions from my 401(k) plan.
I am not going to place my faith in collecting social security to fund my retirement.  If it's still around by the time I'm ready to retire, great.  And if they don't push the retirement age further back, even better.  Hopefully, Congress will not tamper with our social security benefits, but considering the state of our national economy and debt, I wouldn't be surprised.

I've stated from the beginning of this blog that the plan is to retire in 2041 when I turn 56 years old.  Maybe I'll document when I could have been able to retire if I didn't have children (just for kicks and giggles).  But with the cost of raising children and putting them through school, I think 2041 is a realistic and achievable goal.

At the current rate that my 401(k) is progressing, I should be in a decent position assuming contributions do not drastically change and the rate of return is decent (6-7%).  However, drawing down from your 401(k) plan carries two big risks: you can outlive it, or it might drop significantly in value if the market doesn't do well and therefore cause you to take out greater distributions when it's at a loss.

Therefore, a safer and more conservative approach is to invest in income producing assets that you can live off of.  The crossing point for me in which I know I can retire is when the passive income I receive exceeds my expenses.

Based on a review of my expenses in the past, I believe that $3,000 per month in passive income should be enough to cover my expenses in retirement.  Therefore, my goal is to receive $36,000 in dividends in 2041.  Technically, I probably don't need $36,000 in dividends since interest income and rental income should be factored into the $3,000 per month calculation.  Just to be on the safe side though, I will still aim to receive $36,000 in dividends.

You can see a schedule of my projected dividend goals from 2015-2041 here.  Since we still have 26 years to go, this will most likely be subject to change.  In the meantime, this is just a preliminary draft.

Let's do it.


  1. seems like you could probably live well off of $36k a year. That's about what my goal is too. The nice thing too is that you don't just have to sit on your butt all day when you do hit 56. You could find some fun ways to make side money. I wouldn't mind working part time at church or a hobby shop. The flexibility is nice!

    Anyway congrats on setting a clear goal and path to get there!


    1. Hi Adam,

      I'm thinking that $36K per year is enough to cover my monthly expenses with a little breathing room. It's a conservative estimate where I don't need to stress over every dollar spent in retirement, but not so conservative that I will push retirement off for too many years. And you are absolutely right; I can always find fun ways to make side money. In my particular case, I already know how I plan to spend my retirement years - being more involved in church, traveling, and spending more time with family and friends.

      Thanks for the congrats and stopping by and commenting.

  2. I've tried projections before but I find it's always tough.
    1) if a period of high inflation comes around like it did in the 1970s, living costs go through the roof, rendering the projected costs of living useless.
    2) if a bear market comes along, even steady and large corporations like AT&T cut back on their dividends

    1. Hi Tony,

      I agree with you - projections are definitely tough to make. But I find that making projections and laying out a plan or road map is better than not making one at all. By making projections or goals, at least I have an idea of where I need to be and some benchmarks to strive for along the way to get there.

      High inflation can definitely kill the value of the dollar. At the rate of inflation, our current salary raises cannot keep up. Groceries and utilities have skyrocketed, but my wages have not kept up in pace. Hence, the reason why I am a full supporter of investing your capital in income producing assets that can keep up with inflation such as rental properties and dividend growth stocks.

      Some "steady and large" corporations may cut back on their dividends during bear markets, but not all. By choosing companies that are dividend aristocrats (companies that have paid increasing dividends for at least 25 consecutive years), you can avoid that. That's the beauty of investing in dividend growth companies with a long track record.

      Thanks for stopping by and commenting.

  3. I think I can live off around 36k/yr myself as well but it's hard to tell what sort of cost inflation we'll see in the future. I'm the type of investor that likes a lot of safety so I'll probably end up working an extra two or three years to really fill out the portfolio and add additional safety to any calculations I make.

    I haven't set a clear goal yet but I'm aiming for something in the 2025 range which just means save a lot now and see what's going on in 2025.

    1. Hi Timeinthemarketblog,

      I agree that it's hard to tell what sort of cost inflation we'll see in the future. However, I believe that having a plan with defined goals is better than not having any. For me, having an idea of a target number helps me stay focused on what I need to achieve to get to my destination. Like you, I am also the type of investor that likes a lot of safety. Hence, the $36k/year does not include social security nor distributions from my 401(k) plan. The $36k/year is strictly from passive income such as dividend income and rental income.

      Something in the 2025 range is great! That will come around faster than you think. I think that's a great plan and I wish you all the best in achieving your goal.

      Thanks for stopping by and commenting.

  4. Hi Hill,

    Welcome! I'm glad you enjoy the blog! I hope it can be a source of encouragement, help, and/or inspiration.

    Thanks for stopping by and commenting.