Retired at 40 years old?
|February 7, 2008||Posted by Roshawn Watson under Uncategorized|
By: Roshawn Watson
A recent article of Money Magazine profiles Todd and Julie Nielsen, who both retired from the air force after serving about 20 years each. Although retirement from the military at this point is typical because twenty years is when one may collect a pension and lifetime medical benefits, the Nielsens have done something very unusual. They have elected not to pick up private sector jobs: they have quit work altogether for good!
By retiring from work, Todd, 44, and Julie, 40, are living some people’s dream; however, money is still tight. For example, their annual pension income is $58,500, but they have a family of five, with expenses of nearly $54,000, including a mortgage of nearly $20,000 per year.
They also have nearly $400,000 in stocks and Roth IRAs. Their plan is to not touch this until at least another 10 years.
Do they have enough to retire on?
The critical question that the article addresses is whether the Nielsens have enough to retire on. Since Todd and Julie are expected to need this money for at least another 40 to 50 years, they may not have enough, especially if they begin to tap their retirement money too soon. Another concern is that they have no money specifically set aside for their children’s college education. I believe all three children are in elementary school/middle school.
The answer to their problem is not too complicated: earn more and/or cut back on lifestyle even more. They should seriously consider taking on part-time jobs. This would be a quick way for them to boost their investments for a few years since they have very marketable skills. With some very modest increases in investments, they can increase their nest egg by hundreds of thousands over th next few years.
Also, they should try to pay down that mortgage. Without the mortgage, they essentially have no debt, which is great. Ideally, one’s mortgage payments should be less than 25% of his or her income; their current payment is not completely out of line. However, their budget is already very tight, so the fact that this mortgage is taking up about a third of their cash flow is significant. It adds up.
Additionally, they should plan for college. With the staggering costs of college tuition and fees rising annually (with a few exceptions), it is borderline irresponsible for the Nielsens to have no definitive plan to aid their children. If they are planning on furnishing an education, they need to invest for it ASAP.
They have the right idea, but their retiring seems a tad premature based on their financial situation. Instead of struggling unnecessarily for the next decade, they could fund their children’s educations, pay off the house, and increase their investments to a comfortable level by just staying in the workforce a little longer.
Copyright 2012, Roshawn Watson, Pharm.D., Ph.D. All Rights Reserved.