It’s been a while since our last PTFO post. Two months to be exact. At that time I talked about initial retirement planning. Using the 4% rule as a starting point, I estimated our magic retirement number to be $2 million. Using an annual return rate of 5%, I figured it would take about 20 years to reach this number using just my available retirement accounts (401k, HSA, Roth IRA). By these initial calculations, I would be able to PTFO in the year 2035 at the tender age of 57.
Current State of Affairs
As of today, I’m nearing the end of my student loan repayment journey. I graduated residency in July of 2014 with about $300k in debt. Today that total is down to about $120k with plans to make $12,500 payments per month and have it paid in full by October. In terms of our retirement nest egg, we’re about 18% there. Here are some other goals I’ve accomplished up to this point.
Learned (and still learning) about personal finance – probably the most important thing I did on this journey
Paid off all consumer debt – luckily I only had a credit card balance of about $5k
Established an emergency fund – one of the most important, yet often overlooked, components of financial planning
Improved my credit – knocking out my credit card debt and making regular, on-time loan payments did wonders for my credit score
Recalculating Our Retirement Savings Plan
My initial retirement calculations were based off of just my individual annual savings. Now that I’ve had enough time and data to factor in my wife’s savings as well, we can now reassess our savings plan. If you read my 2016 Financial Year in Review post, you know that we were able to save almost $110k toward retirement last year. Based on our budget and financials, this will probably be the amount that we’ll be able to save going forward. To make the math simpler, I’ll up that to $120k per year. We might be able to save a bit more, but this will serve as a good baseline value to make our adjusted calculations.
Using this information and our current retirement portfolio balance, I calculated the number of years it would take to reach our $2 million goal at varying rates of returns. I was inspired to do this by an awesome post by Physician on Fire. While I ended up making my own spreadsheet, you can access a similar one on his site. I divided the $120k total over the course of a year to get $10,000 per month. The table shows how many years it would take to get to certain end values based on the annual rate of return.
$10,000.00 4% 5% 6% 7% 8% 9% 10%
$2,000,000.00 9.9 9.3 8.8 8.3 7.9 7.5 7.2
$2,500,000.00 12.3 11.5 10.8 10.1 9.6 9.1 8.6
$3,000,000.00 14.5 13.4 12.5 11.7 11.1 10.5 9.9
Using a return of 5%, it would take me about 9.3 years to reach the $2 million mark. This means I could reach financial independence in the year 2026 at the age of 48, nine years earlier than initially expected. What’s more, if I decide to work and save for an extra two years, I could reach a nest egg of $2.5 million. This correlates to a more conservative 3% annual withdrawal rate. Hot stuff!!
Once I’m finished with my student loans, I’ll have an additional monthly cash flow of up to $12,500. What will I do then? Will I go on a celebratory shopping spree? Nope, that’s not how I roll. The great thing about making such large payments for the past few years is that we’re accustomed to life without that money. Hypothetically, if I invest an additional $10k of that money starting in 2018, bringing our monthly investment amount to $20k, I’ll be able to reach $2 million in 5.1 years using a 5% return.
$20,000.00 4% 5% 6% 7% 8% 9% 10%
$2,000,000.00 5.3 5.1 4.9 4.7 4.5 4.4 4.2
$2,500,000.00 6.8 6.5 6.2 6.0 5.7 5.5 5.3
$3,000,000.00 8.2 7.8 7.4 7.1 6.8 6.5 6.3
That means I’ll be able to PTFO in 2023 at the age of 45. That’s six years from now. That’s faster than light speed. That’s Ludicrous Speed!!
So that’s were I am currently in my PTFO journey. I’m really close to finally being student loan debt free! And while I’m still several years away from officially PTFO-ing, it’s much sooner than initially calculated. Kudos to me for marrying a doctor! Anyways, thanks for reading and checking out my blog. Until next time!!
