Friday, December 28, 2007

10 Years Retirement Plan Is Possible

Most of my friends feel ridiculous when I told them I want to retire in 10 years. They even laugh at me and they think it is impossible. Is it really true? Let’s me prove it.

My monthly income is $5,000 and yearly will be $5,000 X 12 = $60,000. My monthly expense is $3,000 and $36,000 in a year.

Let’s do a simple math here how much I will spend in 10 years with the 4.5 % inflation rate.

Current Expenses = Last Year Expense + (Last Year Expense X 4.5%)

  1. $36,000 + $36,000 X 4.5% = $37,620
  2. $37,620 + $37,620 X 4.5%= $39,313
  3. $39,313 + $39,313 X 4.5% = $41,082
  4. $41,082 + $41,082 X 4.5% = $42,931
  5. $42,931 + $42,931 X 4.5% = $44,862
  6. $44,862 + $44,862 X 4.5%= $46,881
  7. $46,881 + $46,881 X 4.5%= $48,991
  8. $48,991 + $48,991 X 4.5% = $51,195
  9. $51,195 + $51,195 X 4.5%= $53,499
  10. $53,499 + $53,499 X 4.5%= $55,906
In 10 years, my monthly expenses now become $55,906 which is $4,659 monthly. It is 155% increase from $3000, Wow! No wonder the compound interest is so powerful.

To be financially independent (assuming the investment return is 8%), I need to have total of $55,906 / 8% = $698,836 investment. Wow! So much! That means in 10 years time if I want to be financial freedom, I must have at least $698,836 in cash for investment. Is that possible? Let’s do another simple math again. Now, I want to calculate how much cash I have in 10 years.

Total Current Cash =
Last Year Cash Balance + Current Year Income
– Current Year Expenses + Current Year Investment Return

Total Current Cash =
Last Year Cash Balance + (Last Year Income + Last Year Income X 7%)
– Current Year Expenses + (Last Year Cash Balance X 8%)

I have $120,000 cash now. This is how much I have in 10 years time:
1. $120,000 + ($60,000 + $60,000 X 7% = $64,200)
– $37,620 + $120,000 X 8% = $156,180
2. $156,180 + ($64,200 + $64,200 X 7 % = $68,694)
– $39,313 + $156,180 X 8% = $198,056


[I lazy to write here, actually you can use the MS Excel to calculate all these. I skip to the last year]


10. $719,278 + ($110,308 + $110,308 X 7 % = $118,030)
– $55,907 + $719,278 X 8% = $838,942
Wow! I will have $838,942 in 10 years. Assuming still 8% return, I will have $67,115 income without working anymore. Minus out my expenses $55,906, I still have extra $11,209 which means $934 monthly. This is what we all call FINANCIAL FREEDOM!

To achieve financial freedom in 10 years, please note the following conditions must hold true:
  1. Inflation rate is less or equal to 4.5%
  2. My Income continue to grow with at least 7%
  3. My Investments return have at least 8%
  4. No major unplanned expenses (E.g. Medical fees for parents)
To make it simple, I don’t include the car and housing loan into this calculation. My spouse will cover the car and housing loan within these 5 years anyway. The income excludes my spouse income as well. Also, I almost forgot the education fees for my children. Let’s omit that first for simplicity and assuming my spouse will settle that as well. Yes, she can settle that in fact.

One more last very important thing is the medical fees for parents. This is the most worry thing that I may fail to retire in 10 years time. I haven’t really got a chance to attack this yet. Anyway, 10 years retirement plan is my stretch goal. 15 years retirement plan is my measure of success. I still have 5 years tolerance for anything that out my plan. Having said that, even though after I become financially independent, I’m sure I will still continue working and generate extra income but of course in a more relax way.

So, 10 years retirement plan is possible for me. Please don’t laugh at me, this is no kidding. You can't do it doesn't mean I can't too. What about you? Have you ever thought about it? Do you know you can actually retire in 10 years as well?

p/s: Btw, this is just my rough estimation only. Detail exact and supporting data it is all in my excel spreadsheet.

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28 Comments:

Michael Tsen said...

this is great inspiration, now where do I get that much income and that consistent rate ?

ChampDog said...

@Michael
As you've already known that there is no guarantee answer for that. In fact, you're expert on that and I still have lot things to learn from you.

For my case, the income is mainly from my employer and based on the past 7 years of experience, the consistent rate still holds true. In fact, it is more than that.  Of course, this past data doesn't prove anything in the future. What I can I do is to make sure I’m still performing in my current employer for at least 10 years to make sure I still have at least have 7% increment. On the other hand, building a second income is also a backup plan to attack this. Ultimately, the second income must able to replace my current income now. Unfortunately, it is now far away from that.

Peky said...

In 10 years time, i supposed that's when i start to refer to your blog for calculation on how i can retire in the following 10 years. right now, i can only focus on being a donkey-pig :(

ChampDog said...

You can start the calculation now how you can retire in 20 years and review it again few years later. :)

calgirlfinance said...

ChampDog, That's great that you're planning on retiring in 10 years. I am hoping to retire when I am 35, in 7 years! At least that's when I want to retire from my corporate job.

ChampDog said...

35 and in 7 years! Wow! This is unbelievable. Good luck to you! 10 to 15 years to me will be fine.

calgirlfinance said...

Champdog, I don't want to misrepresent myself. I'm hoping to retire from corporate America when I'm 35 in order to spend more time with our future family, but my husband is going to keep on working.

ChampDog said...

Oh, I see. I got you. Retire from the corporate world and spending more time with family are great things to do. This is what I want to achieve as well. :)

Anonymous said...

You have an important mistake in your calculations. Since inflation is expected to go on after you retire, you must re-invest 4.5% percent back into your investment, or else your principal will deteriorate and will not generate enough to keep you in the coming years. That means you can only withdraw 3.5% of your portfolio, and that's before taxes.

Alvin Lim said...

i think there are some mistakes in ur calculation but it is still a great dream to hv. everything is possible! :D

ChampDog said...

I think you guys are right. Thanks for pointing that out. The inflation rate is expected to go on after retirement is not considered in this calculation. Having said that, based on to re-invest the remaining savings that I have every year, I still can last for 20 years – still can survive without working until 60 years old. But in reality, I don’t think I will completely stop generating income after 10 years. So, definitely it can last longer than 20 years.

This is the realistic goal that I set to myself. I think everyone should have a least think of it to and aware of your financial status in the future. Yes, I agree everything is possible especially with the realistic goal that we have. :)

kayatan said...

Champdog,

I think it is our responsibility to plan for retirement the day we start work.

But, my personal thought on retirement is not to stop working but rather to work the hour you want to and the kind of job you want to.
I will get sick if I sit around and do nothing, seriously !

Js

ChampDog said...

I absolutely agree with you. We may stop working one day but definitely not stop learning. We should keep learning until our last moment. :D

HIB said...

Nice goal. I actually have the same goal. My goal is to be financially independent by 40. I have 9.5 years to go!

Good stuff!
-HIb

ChampDog said...

Great! Let's work together towards that goal. Ultimately, I at least want to have ability to retire in 10 years time (now is 9 years) and I can choose to stop working or continue working. :)Cool, isn't it?

jamy said...

Champ dog,

In fact, I respect young people who think and plan ahead.

I often tell people that it is not how much you earn, it is how much you save. On the other hand, it is true that if you do not earn much, how much can you save ?

If you do not save even if you earn a lot also useless.

On one hand, we can only plan so much but ultimately only God know our future [sound pathetic but it is truth of life]. My dad had seldom got sick in his life was a tai chi instructor for over 30 yrs, got 4th stage brain tumor and die within 9mths. What can you say ? He does not even eat hawker food, does not eat high salt and sugar , everything moderate, walk 5miles and do Tai chi every day ? Man can only plan so much :).

At the age we are living now, I personally would not depend on any 1 employer. Company comes and goes. It is your skill that survive. To me, on going refining and retraining a profession skill is a must survive tool in this changing world. Be resourceful, creative and adaptable :).

Like I say,I think I will get sick if I retire and do nothing. I love freedom and I only want to work the kind of job I enjoy and I only want to work in a place where I enjoy the people there. My nature and my work environment are extremely important to me.

I did not know about my personality trait so much until I took up a psychology class here in the US. No wonder all my times in Malaysia I hated every job that I had there. I realized now that it is the issue of reporting to multi layer of managers, directors that piss me off.

I think the mere fact that I had to report to so many irrelevant people (who has no business on what I was doing )piss me off.I remembered one job that I had in Kuching many years ago for some big shot who is a Tan Sri , even his uncle/cousins thought they were my boss and I need to report to them. I hate that to the max. It was quite depressing for me then.

It took me 25 years to realize that I enjoy working in the kind of work which I am responsible for my own action.

Now I am a license profession in medical/health care field. Though in the dept that I work, there is a head of department but I am solely responsible for my own action and I pay a fair bit on my professional liability premium. I love this nature of job cos I don't have to report to any Ah Kow and Ah Tu who think they are my boss even though they are not. Now of course my big boss are my patients :).

And because the skill that I am having now is in great demand, I do not depend on just one employer.

When I went back to work at 45, I told my hubby I would only work for 10 years and that is. Now I laughed at myself and said why I want to retire when I enjoy my work so much ? Might be I will cut back my hour when I am older so long as I can work, why retire ? I also enjoy interaction between intellectual adults. Everyday I learn new thing and everyday I am intrigue with new medical science findings and discoveries.

Like I say, it is not all about earning, saving play a big part of retirement planning too. I know it is kind of hard to do what I do in the US, ie couponing and get most of the household products free but one key is live beyond your mean. It takes a lot of hard work and discipline to do that :). Today, I woke up at 5am to go the shop to get all the free items :).

I got back 12 bottles of Listerine mouth wash free. (they were $7.99 a bottle :)) and many household products. Like your friend think you are crazy to think of retirement in 10 yrs time, a lot of people think I am crazy to go out to shop at 5am :).

Even if I do not earn like a million bucks a year , if I spend way way below what I earn, I can invest a lot more than people who earn more but spend a lot :).

My only 2 cents about the topics you guys are on is that find something that you like and yes you need to continue looking for profitable investment but why retire ? Look at Warren Buffet, he still works at his age ? He still live in the old house when he first got married :).

I think a lot of bloggers blog about to be financial independent lah so you do not have to work anymore are a whole bunch of people who are not happy in their jobs, either they are in shit jobs or they are too scare to move from their comfort zone to find something they love.

I think work is good for human being :), why retire ?

He he he, I am sure I will get a lot of telor throw to me oleri :).

Jamy

jamy said...

Champdog,
Hope you do not misunderstand and think that I think you are like one of those people who have shit job so they started all the bs kind of blog telling people how to make $ lah, how to be rich lah, no, I actually like your blog and what you write. You have very sound and down to earth advice for people who want to live a debt free life. [just want to explain myself, ok :). ].

ChampDog said...

I think your argument is very true and I don’t think anyone will throw egg to you. :D Anyway this is just for sake of discussion and sharing purpose.

If you love what you’re doing, you shouldn’t retire at all. I totally agree with that. For me (I believe to most of the people too), I don’t really hate my job that much. In fact I love my job too it is just a fact that it may not be my real embedded interest so I have to wait until my retirement and I can only pursue that path. To make sure I still can continue my dream or doing whatever I like, I have to make sure that I will be financial free by the time I retire.

Perhaps we look at the retirement at different perspective. Retirement to you is like stop doing anything and retirement to me is more like a milestone to set ourselves free from financial worries. Once we reach this milestone, we can continue what we have been doing or start focusing new things that we love.

I guess not everyone as lucky as you that can do what you fall in love to. Most of the folks maybe just trapped forever in the maze. There are 2 options to go out from this maze. First option is start changing your job to whatever you really like as what you suggested. The second option is start planning how you can retire early and rich. There is no right or wrong answer for these both options. It is really based on your own. But if you don’t go for both options, you will end-up in deep trouble and that’s why retirement planning comes into play.

Also I need bring up one important thing is, doing what you like or love, you still need financial planning and retirement planning. Depends on the job nature, one day you will eventually lose your ability to work (e.g. physical or mental constraint), then you still need $ to survive in the rest of your life. Another also very important thing is that doing what you love doesn’t mean you can perform. It is a 2 different thing. I don’t really love my job, but I still can perform much better than you.

About your father case, I’m really sorry to hear that. I know we can’t predict the future but we can plan for the worst case scenario. If we have plans, it is still better than no planning at all, don’t you agree? Sometimes the plan may not is for ourselves but for others. It is something like risk management. What if I die tomorrow? Can my dependent survive without me? What if my company fire me tomorrow?

One final note, I don’t think I’m expert in teaching people how to make money or retire early. I’m just sharing my 2 cents and hopefully can spark some discussion like we are having now. :)

jamy said...

Champdog,

In the bible, there's a Jesus disciple called Paul. He was what we Christian said tent maker. He loves to preach but he built tent to support himself so he would not burden the church whom he ministered too. However, his passion was preaching.

I have entire different perspective than yours stated here : "In fact I love my job too it is just a fact that it may not be my real embedded interest so I have to wait until my retirement and I can only pursue that path. To make sure I still can continue my dream or doing whatever I like, I have to make sure that I will be financial free by the time I retire"

I looked at life as very short and how would I know I will live tomorrow ? So, my personality is such that if I am passionate about something, I will purse it with all my heart, soul and energy and I will give my 101% shot, even if I failed, I tell myself at least I give it a shot. I do not like to live in regrets.

I was reading The Millionaire Mind by Thomas J Stanley ( I am not sure how many times I read this book, gosh), I especially like the chapter about vocation, vocation, vocation.

On page 185 Table 5-1 on How Millionaires select a vocation : Important "Discovery" Factors and Page 187 Table 5-2 on How Million select a vocation : Important choice factors sum up to 5 key issues :
"Love your work and it excites you every day.
Know that your chosen vocation is one that allow full use of your abilities and aptitude.
Get high-esteem from our work.
Are absolutely certain that your vocation will make you financially independent one day."

I am not sure if I agree with you on this. "For me (I believe to most of the people too), I don’t really hate my job that much. In fact I love my job too it is just a fact that it may not be my real embedded interest so I have to wait until my retirement and I can only pursue that path"

When you are in your 30's and 40's, it is prime time of one life , if one continue to sloth on something one does not really have interest, one is wasting the prime time of our life. This is the time one has the most energy and I personally believe this is the time when one should allow full use of one abilities and aptitude and ultimately Are absolutely certain that your vocation will make you financially independent one day.

I also disagree on this : "Another also very important thing is that doing what you love doesn’t mean you can perform. It is a 2 different thing. I don’t really love my job, but I still can perform much better than you." Somehow I see most people who are passionate on something will eventually be the guru of that passion. Passionate about something mean you do it when you wake up, you breath the air with it, you go pansai also do it, you sleep also dream of it. How could one not excel on the passion ?

Yes, planning is essential and is part and parcel of life. In our case here in the US, we live on insurance. We purchase everything with insurance, even an ipod comes with insurance, let alone this : "What if I die tomorrow? Can my dependent survive without me? What if my company fire me tomorrow?" We have disabilities insurance, life insurance, you name it we have it here in Almedika.

I think my point is do not wait till retire to do things you love, today is the day to pursue your dream. And I personally do not believe in LUCK. There is no LUCK in my dictionary, I erase off from my dictionary. In my life dictionary LUCK is replaced with with HARD WORK, PERSEVERANCE, FAITH AND NEVER GIVE UP.

My kampung people said my mom family was cursed and that's the reason I was born with a hole in my heart, complete heart block (slow heart), unequal leg length and many other congenital heart defects. They nearly wanted to throw me to sampah because I was born unlucky.

When I was dominated as the most successful manager of Informatics during South East Asia economy crisis, they said I was lucky because education is a recession proof business. A few years after I left Asia, Informatics fold up business. But, one thing people did not realized was that I spent 16hours a day for the first 2 years of business strategies for Brunei Informatics but all that people see was LUCK.

When I first came here, I send out 1000 application letters, I did not even got 1 return letter. I worked as a medical record filer for a mere $5.75 an hour (minimum wage), now that I am a medical profession and do what I really enjoy doing. People said I am lucky. But, people did not realized the humble pie I had to eat when my clinical instructor failed me for something that was not my mistake but I moved on.

To me obstacles are part and parcels of success journey. Without obstacles, success does not taste that sweet !

Some of the attributes of successful people are discipline, focus and perseverance. The more success you are , the more lucky you will be :).

Jamy

ChampDog said...

I understand exactly from your perspective why you disagree with me. I want to bring up one point is, not anyone knows what their passion is and searching for it may take sometimes. I’m in fact still searching until today and it ends up I love so many things. I love playing piano, I love playing badminton, I love playing ping pong, I love basketball, I love swimming, I love electronic logic design, I love programming, I love gaming, I love travelling, and more, you name it. All these years I have been trying and all of them I’ve passion in it. I love all of them. People like me, how to find my real passion? Which one? I can be passionate about anything that what I want to. Now I love management, as it is a new role to me. So who am I?

Yes, doing what you love means you will push your performance much better than what you can do BUT it doesn’t mean your performance can better than other person who may not love what he is doing. Have you seen a passionate singer but his/her performance sucks? Have you seen a passionate sport person cannot climb up to the top? Also a lot of passionate business man as well right? Do all of them successful? However, I don’t deny that if you’re passionate on something, the chances for you to excel is a lot more higher than you don’t have a passion at all but we can’t deny that passionate doesn’t mean you can excel or perform. Sometimes, you don’t…

I see the point. I have forgotten that U.S is full of insurance coverage. Are you guys over insured?

As for luck, I believe in it too but I also believe luck = preparation + opportunity. I believe in luck and I also believe hard work and most importantly when everything goes wrong, I don’t blame luck. It is a very basic fundamental that you don’t blame the environment. Yes, most people do not see the hard work of someone and we often like to think others people are lucky than us. In Chinese, “You See Me Good, I See You Good”. 

In short, I agree that we shouldn’t wait until retire to do things that you love with only ONE condition which is “YOU KNOW EXACTLY WHAT YOU LOVE” and make sure “YOU CAN EXCEL IN IT” too. If you’re like me still searching for what you really love, think twice before you give up your existing jobs to search for your dream job. You may end-up lose everything if you fail and struggle at rest of your life. Having said so, if you're confident enough, why not?

jamy said...

Kawan,

I have not : "Have you seen a passionate singer but his/her performance sucks? Have you seen a passionate sport person cannot climb up to the top?"

When I see people who has a particular passion for something, they are the one who excel and success. Look at Whitney Huston, Celine Dion, singing is these people passion. They cannot do any other thing except Sing. They are passionate about singing. U see people who sucks singing, they probably like singing but singing is not their life :).

All these you mention is what I call things you love to do : "I love playing piano, I love playing badminton, I love playing ping pong, I love basketball, I love swimming, I love electronic logic design, I love programming, I love gaming, I love travelling", it is not passion. Passion mean you love it so much that if that is taken out of you, you are not you anymore.

Most people do not know what they want in life. It is the norm to not know exactly what you want to do than knowing exactly what you do.

When you go shopping with little kids, most kids do not know what toys they want, they want everything because every new toys are fun :):)

You might find your passion one day, you might never find :):).

When I turn 37, my passion is to get marry. So I set out my quest to find a husband. I knew I have not have a lot of times as my biological clock is clicking. My friends around me laughed at me because they think I am really crazy. No, I did not grab anyone to get marry, my criteria was extremely high. It was not an easy quest, I put in a lot of effort but I did get the man I want and I have a good marriage, ha ha ha ha. At that time, nothing else matter to me, except looking for my Mr. Right ! :):).

Jamy

ChampDog said...

I’m glad that you found your Mr. Right. :) I wonder what your criteria were. Is it money related?

jamhy said...

Champdog,
No, money is not the main criteria. I have always find money is easy to find (in my not so humble opinion, ha ha ha).
My criteria is I would say high standard.
Well, I want a man who have the same faith as me. I am a reformed Baptist. I need to find someone who understand what I believe and have the same wave length on this with me. I do not want to change or reform a man whom I have to live in my entire life :). So, beside believing in the bible, he must know also know what is 1689 confession of faith all about, he must have read Jonathan Edwards, Arthur Pink, C.H Spurgeon, and books that are published under Banner of Truth publisher :). He has to be 2 years older or 2 years older (not too old or too young), he cannot be a divorcee and he has to be able to be a honest, kind and responsible man (that is not living on welfare :):)). He does not need to be rich but he need to be hard working , responsible and have good moral standing. And can you believe I found one ? :). And the bonus of my find is he is the only child with a lot of estate from his late mother, ha ha ha ha.

So, my life motto is be focus, work hard and it might take longer to achieve your goal, you will... Even a person like me who was born with many congenital defects but I never give up with what life has dump on me. I do not believe in bad luck, ha ha ha ha.

ChampDog said...

What can I say more, I'm really impressed! :)

Michael Tsen said...

just curious, how's the progress so far ? :)

ChampDog said...

Good question! Haven't got chance to measure it recently. I have been outdated for about a year. You remind me for that. Thanks a lot.

I'm not sure the exact figure. I will say probably now is 20% towards the goal. Is that a good sign?

Personal inflation rate is within control which is good thing but as for my raise and investment are below the target. The target is 7% for raise and 8% for investment return. Small percentage but it is pretty challenging...

The Retirement Group said...

Oldies like me would definitely understand you. I am a retires employee and is now looking for a great retirement plan. Thanks for sharing this with us,

ChampDog said...

You're welcome. I hope the retirement plan won't be too late for you.


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