Planning our retirement by the numbers

Published April 27, 2015   Posted in How to Retire

If you have been a reader of Think Save Retire for any amount of time, you probably have a general idea of our plans for the future. Save, buy townhome in Sedona, pay off townhome in Sedona, move to Sedona, eventually buy our home in Sedona and rent out townhome to cover home costs. Live happily ever after.

Throw in figuring out side income streams, traveling across the US in an RV and other assorted randomness and you’ve just about got it. However, through all this online talk, there is something that has been missing – the numbers!

Okay, this might get a little messy.  But you’ll love it, I promise!

I freely admit it. I am a numbers freak. I love spreadsheets. I love lists. I love sitting down and figuring out what ifs. If I were to save an extra $50 a month starting today, what does that mean for … this, that the other thing down the road? It gives me shivers. Total math nerd right here.

Steve, on the other hand, is not a numbers freak like me. He doesn’t mind the numbers – especially the ones you will see below – but certainly does not get the same thrill from playing with them. So he asked that I share my numbers love affair with our readers so they can see our plan – our Plan by the Numbers.

Mostly, I think he just wants to make the point that we aren’t just full of crap with this whole “retire early” business.  🙂

Caveat Number 1: We KNOW we cannot 100% plan for the future. Things happen. Thus, all of this is a mix of best case, what we know, what we think and some reality thrown in.

Caveat Number 2: While planning is important, due to caveat #1 we don’t want to get ahead of ourselves. You’ll see that while our short term goals are pretty firm, the longer term ones are more conceptual. This works for us. We’re constantly re-evaluating, and as time goes on and we accomplish our short term goals, we will start making new ones.

Here we go!

How do we track our income?

First where is all the money going? And why? Below you will find one of my many spreadsheet tabs documenting our income for the next couple of years. Obviously, this is an estimate. I tend to estimate conservatively so no raises are included. Do we know what we’d do if either one of us got a raise? ABSOLUTELY! It would go into savings with the rest of its kind.

Our plan by the Numbers - Income Sheet

Click for a larger view

This is a look at our estimated income and where the money is going in terms of saving over the next couple of years. By sticking to our budget (which we’re doing a decent job of so far and actually hasn’t been that tough), we’re not only maxing out our 401ks, and saving my entire paycheck, we’re also saving on average about $700 a month from Steve’s paycheck.

As the spreadsheet indicates, we have our savings broken down into 3 buckets: Pretax, FI and Town house. The Pretax is just that, maxing out our 401ks and getting the matches our companies provide each month. This one is easy and automatic. Honestly, I don’t even look at this much. Want to see why? Check out this spreadsheet tab.

Plan by the Numbers - Sheet 2

Click for a larger view

This maps out what our automatic savings would look like if we continue to both work and max out both the 401ks and Roth IRAs through 2019. Of course, we don’t touch them until reaching the proper age. We’re golden. Even if our income pushes us out of the Roth IRA criteria here in the next couple of years…we’re still golden. Before either one of us turns 50, we’ll have over a million dollars. So honestly, I’m not too worried there. Just keep on keeping on.

The next bucket is FI. This is our long term savings account where we’re currently throwing $2500 a month from my paycheck. This is also what we will eventually live off of when we stop working for a living, and this is where the numbers get a bit more wishy washy. Take a look.

Plan by the Numbers: Sheet 3

If we threw all our savings or even all of my paycheck here, we’d be golden by the time we want to stop working fulltime (2021 at the absolute latest so Steve meets his out by 40 goal!). However, it makes me nervous to have all our eggs in one basket. I much prefer having our passive income come from at least 2 sources….hence the townhome (details to follow).

We’re currently only contributing $2500 a month into our retirement savings. At this rate, we won’t have enough dough in those accounts to live off of by 2021 especially if we’re still paying off our mortgage on our home (the second home that we will both live in – not the town house) in Sedona, which we most likely will be. However, we will have a paid off town house generating rental income, and combined with a few additional side income streams, our ambitious retirement goal is still possible. We’re going to continuously re-evaluate as time progresses and figure it out.

For example, my knitting pattern writing venture might take off and start pulling in serious money. Or Steve’s photography, or we get our personal training certifications and start training people to be healthy (one of our possible FI dreams), or I write a best selling novel. Who knows. Worst comes to worst, if we get to the point where we’d like to retire, and we’re not 100% comfortable with our financial situation, one or both of us can keep working a bit longer. Flexibility is key.

The Sedona Arizona town house

The last bucket we’re currently throwing money into is our town house savings. This is a short term savings account where we also keep our emergency fund.

Quick note on the emergency fund: We only have $5000 in this account….though not really. We also keep about $10,000 in our checking account to avoid fees and to have it on hand. Thus, we really have more like $15,000. We both believe this is a reasonable amount to keep around. Emergency funds are meant to be there in case of big catastrophes, like needing a new car ($15000 is MORE than enough), prolonged illness or losing your job. Since both of us pull in a respectable paycheck, if one of us were unable to work for whatever reason, we could easily live off of the other’s salary (and probably still save). This would obviously prolong our savings goals, but we could live through it.

Now onto the town house savings. See what we’re thinking below:

Our plan by the Numbers - Sheet 4

Our plan by the Numbers -Sheet 5

We want to buy a town house in Sedona in the near term to start renting out and paying off as quickly as possible while both Steve and I are still working. Our budget is between $150000 – $175000, though we’d love to spend as little as possible, of course.

Our must haves: 2 bedrooms, 1+ bathrooms, safe area (easy enough in Sedona), good space (not strangely laid out), low-ish HOA, must allow dogs. We are actually hoping for an older property that needs updating in the hopes of picking it up for cheap.  We would do the renovations. However, major renovations are not in the plans for this property, so these updates would need to be cosmetic and the property darn close to move-in-ready.

Why do we want the townhome? Three primary reasons:

  1. First, to rent out and at least pay for itself in the next few years while we are still working in Tucson.
  2. Second, once it is paid off, we plan to move in and stay there mortgage free while feeling out how we like Sedona and searching for our home. This is why they must allow dogs because our pups will be coming with us.
  3. Third, once we move into our Sedona home, we plan to rent out the mortgage-free town house to provide us with passive income for the long haul.

Some of you may notice that this plan does not produce much in the way of cash flow immediately.  Sedona is a beautiful vacation spot with vast access to breathtaking red rocks, gently-flowing streams and a wealth of outdoor hiking.  Due to this, location (and, more specifically, the view from the property) is key.

In our price range, we probably won’t get much in the way of a view, and that is okay.  Cheaper properties cannot be expected to offer the same views as million-dollar estates.  Another option for us is purchasing an older single-family home with a view, but needs fairly major renovations to keep our costs down.  This, unfortunately, would push our buying horizon out substantially.

But in the end, we feel that a smaller and less expensive town house, even without a view, allows us to make our purchase next year and begin establishing ourselves in Sedona.  Whatever rent we get may cover the cost of the mortgage and HOA fees, but even if it doesn’t, the reward is worth the expense in this case.

While it is being rented (and we are still working), we plan to throw every spare dime towards the mortgage as you can see from the ‘Extra Principle‘ line in the above spreadsheet. Once the mortgage is paid off, we’ll definitely switch over to a positive cash flow, even with an HOA. Long term, it’s perfect. It also means less outdoor maintenance and great perks for our tenants, such as pools and other amenities.

And, it’s kinda nice having a completely paid off property in the place that we love.

You will notice that we plan on getting a 15-year mortgage instead of a 30 for the town house. Does this make sense? In fact, I ran the numbers both ways. You can see the 30-year estimate below (notice I upped the interest rate as well). We still plan on devoting the same amount of money each month to pay off the mortgage as quickly as possible. Does having the 15-year vs the 30 make a difference?

It’s not huge, but it definitely does! Since we KNOW we’ll be able to make the higher monthly payments with the 15-year mortgage, it makes total sense to go this route for the town house.  For our eventual home in Sedona, on the other hand, I’m currently estimating a 30-year mortgage. This is because I do not KNOW that we will have the income to pay a higher monthly payment (even though we’ll be shoving money at the mortgage for as long as we can). When we get there, we might realize that we do have the security of meeting the 15-year payments and therefore should go that route. We shall see.

Our plan by the Numbers -Sheet 6

Our plan by the Numbers - Sheet 7

Phew! That is our current plan by the numbers….though, one can only assume and anticipate the future to a certain degree, as I have hopefully explained. I’m okay keeping things a bit wishy-washy and updating the numbers as we go along. That’s half the fun in my opinion – to see how far we have come!

The plan from this point

Given this plan, what do we do now?

  • Keep on keeping on. Stick to the budget. Save every extra penny, just the way we’ve planned.
  • Try to establish some dependable side income streams. See what works and what doesn’t work. Side incomes will make everything go quicker, run smoother and facilitate getting out of full time work that much faster.
  • Sit down every month and evaluate where we are (communication is key!). Do our plans still meet with our goals? People change. Goals change. We need to keep our plan flexible so we can make on-the-fly adjustments in our pursuit to completely nail this goal – the first time.

So how about that RV trip around the United States that I mentioned a couple thousand words up?  Ah, glad you asked!

Steve and I have become inspired by the first season of “Departures”, available on Netflix. This show follows two Canadian 20-somethings (and their camera man) as they take a year off to travel the world. They started by renting an RV and traveled across Canada east to west. They did it MUCH too quickly because they were on a tight schedule.  But, that lit a spark within Steve and I.

Some of you may know that Steve’s parents lived in an RV and traveled the country for 12 happy years. They loved it. They were ready to move on when they were done, but no regrets. We think a 3-6 month trip across the US would be a trip of a lifetime! This is still very much in the idea phase (not even close to planning), but we’re keeping it fresh.

We would probably do this after we bought our home in Sedona and finished working full time. We would probably rent out our home as a furnished vacation rental while away, which would help with some of the costs. Sounds awesome, but not yet in the plans.

What is in the plans? Travel. Food. Our vices. As many of you know, this is the first year we are actively tracking every cent we make and spend. This should give us a very good idea of our base spending needs. We are not going without. We are learning if $300 for groceries and $200 for dining out works for us. We are figuring out if we can travel the way we want for $300 a month. If not, we will adjust the budget and our future needs. Again, this is why so many of our numbers are wishy-washy. We need to figure out our base needs, add in a buffer for unexpected problems and that will determine how much we need to live on.

In other words, we are using this time to establish a simple baseline.

So, that’s it. Our plans by the numbers.  You will notice there is no ONE NUMBER to rule them all, or some “magic net worth number” we need to hit before we’re done working. Could I come up with one even with all the what-ifs in our plan…probably. But we don’t need one. It’s nice to see our net worth number grow, but in truth, that is not what encourages us at this phase.

Right now, seeing our town house savings grow is what makes us dance with joy. That’s step one and where our focus is.  I’m not planning on figuring out the magic net worth number as of yet, and possibly never will. It will probably end up being a set of magic numbers that allows us to retire: Mortgage on town house rental, mortgage on home, emergency savings, long term savings accounts, retirement accounts, and don’t forget side income streams.

The next couple of years should be exciting, and I hope you’ll continue learning with us as we go.  🙂

We track our net worth using Personal Capital


17 responses to “Planning our retirement by the numbers”

  1. Wow — so interesting to see your full breakdown! Given what good shape you’re in on tax-deferred accounts, have you thought about reducing what you’re putting them, perhaps sometime down the road? We’re asking ourselves this question — we’re way ahead of the game on 401(k)s and could really use that money instead in our taxable investments to get us through the first 18-20 years of retirement, and so we’ve been gradually backing off from the 401(k) max. (Still getting our full employer max, of course — we’re not dumb enough to pass up free money!) Just curious if you’ve considered the same thing.

    • We’ve thought about it. It would also affect our current taxes. My company is now offering a HSA which I’ll probably go for next year. So we’re going to sit down and figure it out later in the year but it’s definitely a possibility. Thank you for the suggestion!

  2. Hannah says:

    You didn’t mention one super important number- what’s the rental cap in your market? With your expenses, it looks like you would probably want about $1450 per month to choose real estate. Do you think that’s realistic?

    One more number for you- health of HOA numbers are very important, otherwise you might end up like me and buy a low HOA property only for the fees to double.

    • We’re actually hoping for $1000 a month rent which is do-able but on the high side. It would depend on how upgraded we can get the townhome to look. If it was more like $850-900 we’d be okay with that too since we really want it for the long term and as only one of our forms of passive income.

      Thank you for the advice on the HOA. Both our current homes have HOAs but we haven’t dealt with one in a townhome/condo atmosphere and I know that can make a difference. I’m adding the HOA health to my must haves list!

      • Hannah says:

        HOAs can be horrible because of the guaranteed price tag, but if you find a good one, the hassle elimination can be a life saver. Having the entire outside of the building cared for (most especially the roof and yard work) can be a tremendous asset.

        Also, since your planning to pay it down so aggressively, I would practically think of your townhome purchase as an all cash RE investment, with 5% expected returns (and a possibility of future growth). I like RE because it feels so secure (to me) and provides some nice variance in asset allocation. I personally would hesitate on a 5% expected ROI, but I think if this feels like a good choice for you then I would say go with your bad selves (check out the bigger pockets forums and No Nonsense Landlord to learn some more first).

        • I like the way you’re thinking! RE feels secure to me as well. I’m the one pushing not having our eggs all in one basket though Steve agrees so it’s not too hard of a push. Thank you for the recommendations. I’ll be checking out the bigger pocket forums and No Nonsense Landlord now 🙂

  3. I love how detailed y’all get here Courtney. It would be amazing to be able to get up and go travel across the country, sounds like a fantastic idea.

    • The idea is growing on us more and more. That’s why our plan has to be flexible. In our current dreaming the town home would be our home base and the first few years after retiring we’d be traveling a lot and renting it out while we’re not there. We shall see. 🙂

  4. Just wondering, are you going to rent out the townhome in Sedona as a short-term rental or a long-term rental? Furnished short term rental might generate you more money since Sedona is a vacation spot although there will (probably) be higher vacancy rate and it might need more maintenance as well.

    • For the next few years it would be a long term unfurnished rental. Not as much rent but less hassle while we’re a couple of hours away. We might even hire someone to manage it for us (though we haven’t had any issues with our home 40 minutes away from Tucson). In the long run it could go either way. If we decide to travel for a few years and not buy a home we’d leave the town home furnished and rent it as a vacation rental through one of the services in Sedona. If we move into a home in Sedona I don’t know. I like the idea of the extra income but Steve is worried about the work-load. However like you’ve noticed being a vacation destination we will have the option of keeping it either a long-term or short-term furnished rental in the future.

  5. Mrs SSC says:

    Awesome – it is great to see numbers. I love playing with numbers and spreadsheets too. I think you really hit the main point in planning “flexibility is key” That is the concept we are trying to get comfortable with.. I keep telling my husband, we could save $1 million or $3 million – and both could not be enough if we ( I mean -he) refuses to be flexible.

    • Steve like’s to say he’s nothing if not….flexible 🙂 It’s hard for me not to have a set plan but without solid end goals that’s not happening anytime soon. So we aim for short term goals in the near term and occasionally visit the horizon to plot our course!

  6. Even Steven says:

    I read this without my morning coffee, but I still loved all the details as I squinted with one eye open;) JK As a real estate FI guy, I am a fan, also I am a strong believer in multiple incomes for ER, and lastly the plan makes sense which is the most important.

    Looking from a distance here are my concerns. What if you don’t want to be landlords? Part of the plan is assuming that holding a rental property, while living in Tuscon will be puppies and ice cream. Also long term vacancy, especially if you depend on the rental income?

    Also one question is the FI Cash Bucket sitting in a savings account or allocated elsewhere?

    • I like numbers even in the morning but I think Steve would grimace a bit at reading an article with this many numbers before his morning coffee. 🙂

      As for your questions. We know we’re okay being landlords because we currently are. We have renters locked into a two year lease in Steve’s bachelor home south of Tucson. We are very lucky with the renters we chose, though we did do our homework.

      We haven’t decided whether we’re going to work with a management company in Sedona while we’re still in Tucson. We’d like to avoid it if possible especially since we hardly need to go down to the current rental. Most problems can be taken care of with a phone call. For those who don’t know, Sedona is about 4 – 4 1/2 hours from Tucson. We’re lucky that we have a place to stay right in the middle of that trip (2 hours) whenever we need to. So if we do need to make trips up we can do it and stay for free not too far away.

      Long term vacancy is always an issue. I’ve accounted for some vacancy in our numbers but not for months and months. Luckily Sedona has a thriving rental market from the research we’ve done. A lot of the people who work in Sedona cannot afford to live there (unfortunately) so there are always people looking for rentals. It is also a retirement destination so there are a decent number of snowbirds and retirees looking for places. We always have the option of switching over to a furnished short-term rental strategy if we need to as well.

      Lastly our FI bucket is sitting in a savings account earning 0.99% APY. Not a great return but the best I could find for savings. If we had a longer time horizon we might have looked into other options but this seemed pretty good for now.

  7. Great detailed picture Courtney! You don’t plan to tap your 401k’s with a Roth conversion in retirement like some other early retirees? Also congrats on the decent match you two get… I’m assuming 18 x 2 = 36, so 11k of match. That’s great!

  8. Jason says:

    I love the spreadsheets and I wouldn’t worry too much about not having income when you reach FI. I mean have finally realized that FI doesn’t mean I stop working. It just means I have the option to do something else. Most likely you all will stop working in general, but I am sure there will be lots of “work” with side incomes and the like. I mean I can’t see myself playing bingo all day, but then again my FI will be a little later than most. Ah to be young again :)>

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