Retire At 40: Here's How

[StrawberryFields]

I found this interesting... too bad I am past 40.

Oh wait! I am retired.

Retire at 40: Here's how

It's simple, but hard. Take 20% of your gross income every month, invest it in a balanced index fund and leave it there, then retire 20 years later with enough for a lifetime. Do you have what it takes?

Right now, I'm 20 years old. I am willing to take a large percentage off the top of my salary for the rest of my working life in order to be able to retire very young and live off of the proceeds of my investments and do volunteer work. How many years would I have to work if I saved 20% of my income?

He went on to name a number of other specifics about his situation, but they're really not important. If you were to take 20% of your annual income starting at age 20 and put it in a fund following the S&P 500 Index ($INX), that fund continued to grow at the long-term historical rate (12%) and you received a 4% raise each year, you could walk away from your job and live off the interest at age 41 matching your current salary -- or quit at 43 and be able to give yourself a 4% "raise" each year from the interest, which is probably the better plan because it combats inflation.

Raise the amount to 25% and you're done at age 38 and able to live in perpetuity at age 40.

Obviously, some people are going to balk at this and state that it "can't" be done. The truth is that it can be done if you have the willingness to live below your means and authentically behave as if 20% of your total salary doesn't exist.

It is challenging, don't get me wrong. Let's take the case of someone who makes about $60,000 a year. He brings home a paycheck every month in the amount of $3,200. In order to save 20% of his whole annual salary ($12,000), he would have to be willing to immediately take $1,000 of that take-home paycheck every month, put it straight into an investment and not touch it at all. This takes an amount of financial fortitude and will power that, quite honestly, most Americans don't have.

My advice to this young man is that if this is truly your goal, then it is achievable, and I offer the following points of advice:

Make that saving automatic. Figure out what exact dollar amount you need to remove from each paycheck to equal 20% of your total salary, then set things up so that amount is withdrawn automatically. Since you're planning on retiring so young, it will have to be placed into a non-tax-sheltered investment account, which is fine if you invest it right.

Buy and hold. Buy into a very broad-based investment, such as the Vanguard 500 Index Fund (VFINX), and just keep adding money to it and don't move it around. This will set you up to pay only long-term capital-gains tax when you withdraw it, meaning that your tax time in the future when you start liquidating it to live will actually be quite pleasant (just long-term capital gains tax, if that even exists then).

Learn to appreciate frugal living. With an e-mail like that, I'm already sure that you are more likely to buy a sturdy late-model used car than a new Lexus, but it's important to state just the same: You can easily save that 20% you're wanting to save by making good lifestyle choices. You'll find that if you've made the investments automatic, you'll easily learn to live on whatever is left over.

http://articles.moneycentral.msn.com/Retir...40HeresHow.aspx

Good luck, and I hope to hear from you when you're 40 and retired!

[shanstress70]

Guess this is impossible if you're already 37!?

[Guest Yediyd]

I'm 43

[Dr T]

invest, invest, invest. It's not too late for the two of you.

[shanstress70]

Oh yes, I'm doing that. I put 10% into 401K and also have some in real estate. I'm still not gonna retire at 40 though. But that's OK cause I love what I do.

[FrankJL]

The main problem with this article is suggesting that you put all your money into one fund. You don't put all your eggs in one basket, that's just basic investing 101.

Just as an example... He list the vanguard 500 index fund. This muni lost almost 40% of its value in 2000 and has just recently reattained its pre-2000 values. Granted though its a large cap moderate growth fund, so it shouldn't fluctuate that much.

If you a younger investor, you would could potentially do a lot better with short-term investing in smaller cap aggressive growth funds, or individual stocks. You may take some losses, but with careful diversification you could offset most small loses, and still net more in the long run. While you are young though you can be a lot more bullish with your investments.

Not saying you should ignore more traditionally investment vehicles like IRAs (though if your young you should be going for a roth IRA, for the tax benefits, depending on your income), large cap munis or bonds.

[BenRaines]

The Vanguard S&P Index fund lost 40% of its value in 2000??????

Ben Raines

[BenRaines]

By my calculations the funds share value was $134.04 on Jan 1, 2000. Closing value on Dec 28, 2000 was $121.86. That is about 9% drop in value for the year. That 9% does not reflect about a 1.5% dividend pay out as well. Net drop about 7.5%

A mutual fund's year by year performance should only be used for a trend over several years. No one should be investing for one year in a mutual fund.

The 5, 10 and since inception numbers are excellent. 10.58%, 7.05% and 12.26%. These numbers are all as of June 30, 2007.

While 7.05% may not sound sexy. Consider that CD rates during that time were down in the 2-3% range.

Ben Raines

[Marsha]

Well then it is WAY past my time to retire at 40. Am I the oldest member on this board?

Can someone please help me with the stocks and investing? I have a 28 year old son that just doubled his income this year (to 70K) and would love to steer him on to some investments.

Not finishing high school (MOM, I quit (at 16) I am a man now) So this mom said, "ok, you have 2 weeks to find a job and 2 weeks after that to find a place to live. Well, long story short, he did just that, been on his own since 16. I could picture him STILL playing video games in one of my spare bedrooms. Tough love, hard, but it worked. Our relationship is the BEST!

He has given me a DIL and a wonderful grandson whe is now 2 1/2 years old. He has worked for this company for a little over 2 years and hard work got him where he is now.

I would love to help him invest for his future. Thanks for any advice.

Marsha

[pushka]

Marsha, you're not the oldest on the site...I will be 44 in September.

I once set up a couple of private pension plans, but shortly afterwards I gave up working completely, due to illness and having a 2nd child. I really don't know what's going to happen when I reach retirement age, as I lost touch with the companies many years ago, and still don't know how much was invested or whether I will be due any money at all from them.

Moral of that story, always take good financial advice before signing anything that you don't know much about!

[StrawberryFields]

While 7.05% may not sound sexy. Consider that CD rates during that time were down in the 2-3% range.

Ben Raines

Ben, LOL

I can tell what kind of thing make your mouth water..... NUMBERS.

[FrankJL]

Ben.

Perhaps I misspoke. In late 2000 it capped at slightly over 140, and was in a steady decline, until the middle of 2003, when it bottomed out at 75. That is what I meant, I didn't mean it dropped that much in one year.

My main point was that I didn't like that article for suggesting you put all your money in just one place.

[BenRaines]

I was a licensed stockbroker for almost 25 years. Working with stocks, bonds, mutual funds and other investments. The last three years of that I managed with a team over 80 million dollars of investors assets.

I do agree that one stock is not the place to put any investment. The S&P fund is an indexed mutual fund that holds shares of some of the 500 largest companies in the US. For a fully diversified portfolio someone should have international exposure and depending on age and risk tolerance some fixed income investments.

If I were to own an equity or stock investment I would own the S&P 500 Index fund or the Schwab 1000 fund.

There are also new types of shares that are called Ishares that trade like stocks and avoid the unintended capital gain of a mutual fund.

Ben Raines

[Dr T]

This year I started investing in over seas stocks. I was told to take a look outside the U.S. Looking at the numbers, I wasn't too impressed. It seemed like the U.S. markets have been doing better (from the limited numbers that I saw.) I did put a little in but wasn't completely sold. Any thoughts Ben?

[Gabelma]

My Dad retiried comfortably at 50 by paying off his mortgage and selling his house and moving into smaller accomadation, he then took voluntary redundancy, which gave him a tidy sum. This made him comfortable enough until his company pension kicked in at 55, he then took on a small Saturday job which gives him his pocket money then at 65 his State Pension and free bus pass kicked in.

He manages 3 foreign holidaays a year and 4 women as well as 4 kids and 8 grandkids

Charley

[Marsha]

Marsha, you're not the oldest on the site...I will be 44 in September.

Well I still have you beat by more than a decade. But still going strong, little aches and pains creep up but when I see the sun shining in the morning I am happy!

PS My birthday is Sept 16th, when is yours?

[Annabelli]

This is a very old article that has been passed around for years. I believe people's life expectancy was about 40 years old when it was first published. You have to take into consideration that people are living well into their 80's nowadays.

The rule of thumb is the quarter: 25% income for housing/utilities/home owners insurance, 25% food, clothing, transportation/car insurance, 25% for medical, emergencies, vacation, education, and 25% for savings.

You need a steady job to accomplish that.

[BenRaines]

I don't believe there was an S&P 500 Index back when life expectance was 40. :)

Dr. T. International funds are a good part of most peoples portfolio. The international market does not march along with the US. They are almost like a tetter totter. When one is up the other trails and vice versa. Do not try to time the markets just invest for long term and hold on.

Ben Raines

[Marsha]

The rule of thumb is the quarter: 25% income for housing/utilities/home owners insurance, 25% food, clothing, transportation/car insurance, 25% for medical, emergencies, vacation, education, and 25% for savings.

You need a steady job to accomplish that.

Thats 100% where does tithing come in?

[john doe]

This year I started investing in over seas stocks. I was told to take a look outside the U.S. Looking at the numbers, I wasn't too impressed. It seemed like the U.S. markets have been doing better (from the limited numbers that I saw.) I did put a little in but wasn't completely sold. Any thoughts Ben?

My international stock fund has returned 18-19% so far this year. I have split my 401(k) into about 20 different funds with varying degrees of risk, but over the past 10 years the international stock fund has been a good performer for me.

[Dr T]

Thank you for your thoughts Ben and John. :) Much appreciated.

[StrawberryFields]

Just IN~

Market Dispatches7/12/2007 8:00 PM ET

Stocks break records with best day since 2002

The Dow jumps 284 points, its biggest one-day point gain since October 2002, as Alcoa soars on takeover speculation. Intel and American Express see big gains. Wal-Mart and other retailers report better-than-expected sales for June.

Latest Market Update

July 12, 2007 -- 16:20 ET

[bRIEFING.COM] The Dow logged its first gain of more than 200-points since July 19, 2006 and its best one-day performance since March 2003 in route to its latest record finish. The S&P 500 also closed at a new all-time high while the Nasdaq... More

MoreIn a day for the record books, the Dow Jones Industrial Average and the Standard & Poor's 500 Index both set new highs as merger news and generally stronger-than-expected reports of retail sales stoked investor giddiness.

The Dow crossed 13,800 for the first time as it jumped 284 points, or 2.1%, to just under 13,862. That was the biggest percentage gain since October 2003 and the largest one-day point gain since Oct. 15, 2002. All 30 stocks in the index were higher.

The S&P 500 rose 1.9% to 1,547.70, topping its best close of 1,539.18 set on June 4. Its point gain was its biggest single-day change since March 2003. A total of 459 of the 500 stocks in the index finished with gains.

The Nasdaq Composite was up nearly 50 points, or 1.9%, to just under 2,702, its best close since Feb. 1, 2001, when it ended at nearly 2,783. Technology stocks have been especially strong in recent weeks.

Chip giant Intel (INTC, news, msgs), whose prospects seem to be improving, was up more than 5.8% to $26, second-best among Dow stocks and tops among the 19 stocks in the Philadelphia Semiconductor Index ($SOX.X). The chip index was up 2.9% to 531.

SuperModels: Grab Intel in the new tech rally

The rally began when retailers released their reports on June sales, and the momentum forced many short sellers to cover their positions, adding to the market's upward momentum.

Today's gains mirrored a rally that began roughly a year ago and fanned talk the Dow will hit 15,000 or even 16,000 this year.

British mining giant Rio Tinto's (RTP, news, msgs) $101-a-share, $38 billion bid for Canadian aluminum maker Alcan (AL, news, msgs), a $10 billion premium over a bid from Alcoa (AA, news, msgs), was the big news. Alcan was up about 10% on the day to $98.45. Alcoa withdrew its bid Thursday night after the stock had jumped 6.7% to $45.29, the biggest percentage gain among Dow stocks.

Many investors now believe the U.S. aluminum giant is itself now a takeover candidate. Australian mining company BHP Billiton (BHP, news, msgs) is said to be the likeliest acquirer.

Alcoa CEO Alain Belda said Rio Tinto's bid "strongly reinforces our view of the underlying value in the aluminum industry and its bright prospects for the future." But he said Alcoa has "more attractive options for delivering additional value to shareholders."

Whether that is as an independent company, however, remains to be seen.

The frenzy for metals and other materials stocks pushed the Select Sector SPDR Materials (XLB, news, msgs) exchange-traded fund up more than 2.5%, tops among ETFs based on the sectors of the S&P 500.

Get free, real-time stock quotes on MSN Money

Global growth, a big theme in this year's market gains, was also a force today. Caterpillar (CAT, news, msgs) was up 2.3% to $84.09; Hewlett-Packard (HPQ, news, msgs) was up 3.7%.

Financial services stocks were recovering as well. American Express (AXP, news, msgs) added 23 points to the Dow, better than even Alcoa, after a Lehman Bros. analyst said greater international spending and the weak U.S. dollar will boost the stock, and raised his 2007 and 2008 estimates for the credit card issuer. The stock itself was up 5.1% to $63.33, third among the Dow stocks.

Video: The markets and the dollar

The Standard & Poor's Banking Index ($BIX.X) was up 2.3% to 392; the Amex Securities Broker/Dealer ($XBD.X), among the weakest groups this year because of the subprime mortgage crisis, also moved 2.3% higher.

The gains came as crude oil slipped to $72.50 after jumping well above $73 earlier in the day. Stocks pulled money from bonds, forcing interest rates higher. The 10-year Treasury note was yielding 5.12% today, up from 5.08% Wednesday.

2007 year-to-date changes for Dow components Company Ytd chg. Company Ytd chg. Company Ytd chg.

Alcoa 50.9% Hewlett-Packard 15.0% American Express 4.4%

Caterpillar 37.1% Boeing 13.4% JPMorgan Chase 2.6%

Honeywell Intl. 33.6% AT&T 13.2% Home Depot 1.9%

Intel 28.4% Altria Group 13.0% Microsoft 0.7%

General Motors 22.2% IBM 12.5% Pfizer 0.3%

United Technologies 18.3% Verizon 11.3% Walt Disney Co. -0.1%

Exxon Mobil 17.0% Coca-Cola 9.1% Procter & Gamble -2.1%

McDonald's 16.5% Wal-Mart Stores 5.7% American Int. Group -3.3%

Merck 16.4% DuPont 5.7% Johnson & Johnson -4.0%

3M 15.4% General Electric 4.6% Citigroup -5.1%

http://articles.moneycentral.msn.com/Inves...12markets2.aspx

[miztrniceguy]

i currently divide my 401k into 2 funds. Russell 2000 and Templeton.

this year to date the performance is 15.8%

for last 12 month period 35.98%

[pushka]

<div class='quotemain'>

Marsha, you're not the oldest on the site...I will be 44 in September.

Well I still have you beat by more than a decade. But still going strong, little aches and pains creep up but when I see the sun shining in the morning I am happy!

PS My birthday is Sept 16th, when is yours?

Mine's 27th September. :)