The 5 year is long post had me brain-storming about how to make things go faster than 5 years.
Lets say your annual costs are $12k. Assume you earn 6% off of savings, you need about $200k to retire.
-You make $70k/annum.
-You lose $17.5k/annum to tax (lets pretend
-Costs are $12k/annum.
So you save $40k/annum. You retire at somepoint between year 4 and 5.
So how do you go faster.
You have three levers:
-income
-cost
-tax
So here's one proposal.
Income shifting would be incredibly valuable to ERE and a great way to pull on the tax lever. Lets pretend that income/tax/cost are same as the initial example.
-Income $70k
-tax rate for 70k is 25%
-actual income you need - cost + tax rate... so about $14k
-tax rate at a salary of $12k... 15%
So now it looks like
-taxable income $14k
-costs $12k
-taxes $1.8k
-saved money - $58k
So you've just gained about $18,000 per annum, and you are down to about 3.5 years for your retirement goal.
There are potentially more tax advantages in this scenario as well - you could pay dividends instead of salary, you can make your health/life insurance tax deductible, etc.
So, really what I'm getting at is that you should start your own business. Contracting your skill or build a product/service and sell it:
1. You can earn money through your own corp which makes a big difference on income and how fast you can retire
2. You work for yourself, so the 3-5 year period doesn't feel like torture.
3. If you are motivated so you can probably make a lot more money than your current gig.
4. You don't have to "retire" and stop working. Its your own company! You could work part-time for fun, only take gigs that you want to take.
5. Far, far, far more potential for upside than a day job. You could get lucky... you can't get lucky if you work for somebody.
Extremer Early Retirement
I think both of those depend on the nature of the business and the nature of you. If for instance you have industry credibility from your current day job, it helps solve #1.
#2 is only true if you build a product/service. There's no reason you should really have any cost if you are setting yourself up as a contractor doing what you normally do.
I think building the business on the side of your current day job is a legitimate way to also de-risk both.
Most people are told that starting businesses is risky. Having done nothing but startups my whole life, I think thats baloney. The risk stats are confounded by the people who have an idea who don't follow through. They are then confounded by people who hit a stumbling block or two in year 1 and give up. If you can get past year 1, the risk drops dramatically, and continues to drop exponentially as you get past year 3 and 5. And the reward then starts to also pick up exponentially.
But there is risk, you should weigh it carefully. There is an upside of getting out of your day job very fast, retiring even earlier, owning a cool business you love, doing it for the rest of your life... there is a downside that you botch your retirement goals by a year or two.
#2 is only true if you build a product/service. There's no reason you should really have any cost if you are setting yourself up as a contractor doing what you normally do.
I think building the business on the side of your current day job is a legitimate way to also de-risk both.
Most people are told that starting businesses is risky. Having done nothing but startups my whole life, I think thats baloney. The risk stats are confounded by the people who have an idea who don't follow through. They are then confounded by people who hit a stumbling block or two in year 1 and give up. If you can get past year 1, the risk drops dramatically, and continues to drop exponentially as you get past year 3 and 5. And the reward then starts to also pick up exponentially.
But there is risk, you should weigh it carefully. There is an upside of getting out of your day job very fast, retiring even earlier, owning a cool business you love, doing it for the rest of your life... there is a downside that you botch your retirement goals by a year or two.
I would enjoy hearing more about the "Having done nothing but startups my whole life, I think thats baloney." I am always interested in what others can tell me from experience.
As for #1, the point I was trying to make is that it usually take a few years of experience to become a credible contractor there by eliminating the few years you would save.
As for #1, the point I was trying to make is that it usually take a few years of experience to become a credible contractor there by eliminating the few years you would save.
If I could figure out the licensing rights for certain companies software and distributorships I would be out the door tomorrow and probable be able to land 250k in contracts with the customers who love me already.
Unfortunately I cannot easily find the information. Currently I am screening companies that have the license already and seeing if I can buy a stake and take over for the license...the closer they are to folding, the better... of course I have no idea how to check out everything about these companies, but the design and layout of their websites tells me quite a bit already...heh
Unfortunately I cannot easily find the information. Currently I am screening companies that have the license already and seeing if I can buy a stake and take over for the license...the closer they are to folding, the better... of course I have no idea how to check out everything about these companies, but the design and layout of their websites tells me quite a bit already...heh
I'm not sure I really get the whole idea behind where the extra money comes from in your scenario. The numbers don't seem to add up properly in the example. For instance, if:
Total income = costs + taxes + saved money
Scenario 1 is: Total Income= 70k, costs =12k, taxes =17.5k, saved money =40k. This works out fine: 70k = 12k +17.5k +40k, (rounding the 17.5k up to 18k, as the numbers are just estimations, right?)
Scenario 2 seems to be: Total Income =70k, costs = 12k, taxes =1.8k, saved money =58k
so, costs+taxes+saved money adds up to 72k, which is more than the total income.
Are you trying to suggest that one should become self employed so that he can put more money into a pre-tax retirement vehicle, and deduct more expenses pretax? Thus potentially, based on scenario 2, one could save $56k in pre-tax dollars?
That seems like an idea worth investigating, and could work for some people depending on their job, but we also must consider that the numbers won't be quite so favorable. First, when you become self-employed with an income of $70k, you'll have to pay an additional $4500 per year in social security and medicare taxes, but you'll get to deduct an additional $4900 from your taxes. Also, many people who are employed at $70k per year get benefits such as health insurance, 401k matching, etc. As a self-employed individual, you'll be paying for those yourself, and won't get any matching. Also, I don't know any reasonable way that you'd be able to put $56k away pre-tax, and you'll have to pay some tax on the money eventually, so you won't come out ahead by $16k per year.
Am I on the wrong path here?
Total income = costs + taxes + saved money
Scenario 1 is: Total Income= 70k, costs =12k, taxes =17.5k, saved money =40k. This works out fine: 70k = 12k +17.5k +40k, (rounding the 17.5k up to 18k, as the numbers are just estimations, right?)
Scenario 2 seems to be: Total Income =70k, costs = 12k, taxes =1.8k, saved money =58k
so, costs+taxes+saved money adds up to 72k, which is more than the total income.
Are you trying to suggest that one should become self employed so that he can put more money into a pre-tax retirement vehicle, and deduct more expenses pretax? Thus potentially, based on scenario 2, one could save $56k in pre-tax dollars?
That seems like an idea worth investigating, and could work for some people depending on their job, but we also must consider that the numbers won't be quite so favorable. First, when you become self-employed with an income of $70k, you'll have to pay an additional $4500 per year in social security and medicare taxes, but you'll get to deduct an additional $4900 from your taxes. Also, many people who are employed at $70k per year get benefits such as health insurance, 401k matching, etc. As a self-employed individual, you'll be paying for those yourself, and won't get any matching. Also, I don't know any reasonable way that you'd be able to put $56k away pre-tax, and you'll have to pay some tax on the money eventually, so you won't come out ahead by $16k per year.
Am I on the wrong path here?