A young investor’s *very* detailed plan to achieve FIRE by 45

Posted: 10 November 2020 6:47 pm

Man looking over lake

He walks us through his exact strategy of investing through rental real estate, the stock market and a 401(k) plan.

Our new series highlights stories from real people who’ve joined the financial independence, retire early (FIRE) movement. Some have successfully reached FIRE, while others are on track to do so over the next few years. Answers are edited for length and clarity.

  • Name: Jared Hauf
  • Profession: Construction manager and FIRE blogger at 30Sum
  • Current age: 31
  • Age I plan to retire: 45
  • Time in FIRE movement: 11 years
  • Investment strategy: Rental real estate, stock market investments and a 401(k) plan

How long have you been pursuing FIRE?

I have been pursuing FIRE aggressively for three years, but have slowly been working on FIRE since I was 20. Due to many circumstances, I’ve had to shift and alter my ideas and plans, but I believe I’ve finally found a good balance and can continue to increase my trajectory from here.

What inspired you to join the FIRE movement?

What inspired me to join the FIRE movement was simply my appreciation of my own time and energy, wanting to live my life my way. I don’t mind working, and I enjoy the challenges, but I have a lot of ideas of my own and would prefer to work on those.

Also, I’m getting tired of waking up at 3:30 a.m. and driving an hour or more to work, which probably has a lot to do with it, too!

What is your investment strategy?

I utilize three areas currently to try to reach FIRE by the age of 45 while raising two young children: rental real estate, stock market investments and my company-sponsored 401(k) plan.

How I plan for these to allow me to retire early is by creating cash flow and appreciation from now until I’m 45. I’m still working and contributing to each of them currently, and then from ages 45 to 59 and a half, my 401(k) should continue to appreciate while I draw from the other investments.

Rental real estate

Currently, I have one rental property in a B-class neighborhood with highly rated schools. I bought it near the lows of the market and have seen it appreciate over $60,000 so far. Due to the stable and growing local economy, top-rated school zones, and it being a safe area, this home is able to command premium rental rates.

I plan to expand the rental business in this area, as there is still an influx of people moving into the city, which should help to continue to boost cash flow and appreciation. I wouldn’t have a problem managing these from out of state when I eventually relocate since I know the area really well, have property management and resources in place to take care of the properties and plan to return to the area to visit family and on holidays.

You’ll see that we plan to relocate in the future to a low-cost-of-living (LCOL) area, at which point I will be able to accelerate the rental business.

Stock market investments

I currently invest $732 a month in a taxable brokerage account like clockwork. This is automatic, and transfers are made from my checking account to the brokerage account every Monday for $183.

I then allow the money to accrue in my account until there’s a market pullback. Recently, due to the substantial pullback at the end of February due to coronavirus fears, I deposited a more significant amount to deploy — as market conditions seem to be oversold and fear is in the streets.

These investments are both long and short term, and I will access this cash reserve when I find rental properties that meet my criteria to place down payments of 20%.

401(k) plan

I have been maxing out my 401(k) plan for the last several years. I currently contribute around $1,150 per month pretax and $400 per month in my Roth account so that I can take distributions tax-free come retirement. I also get a 4% company match, which is generously vested immediately with my current employer.

I use this account mainly as a backup plan. I could contribute less to this plan and accelerate the rental real estate business quicker. However, I like to invest with some caution and take more calculated risks.

My 401(k) is mainly a backup plan, and I don’t take it into account for my FIRE numbers. It’s there in case I massively screw up on the FIRE plan — I’ll still be able to retire comfortably, albeit at an older age.

I should have just around $1 million in the account at the age of 45 if I keep my current investing schedule and don’t make any changes — assuming an average 7% annual return in the markets.

I can’t access the account until I’m 59-and-a-half years old, which will give it an additional 14 years to grow. By then, it should have amassed around $2.5 million — again using the 7% historical annual market returns.

This should be enough to sufficiently ride out retirement even without any other investments working in my favor, as it should provide around $100,000 in retirement income if I withdraw at 4%.

By then, I plan to have my future Florida or South Carolina house paid in full, and the kids will hopefully be creating a great future for themselves at that point, so my costs will be drastically lower than today.

What other techniques are you using to achieve FIRE?

My wife and I also plan to leave our high-cost-of-living (HCOL) area in the next five to seven years and go to a cheaper state. We have had our eye on Florida and South Carolina as options — as they both offer warmer climates and easy access to beaches.

Florida’s real estate has begun to appreciate quicker than I had hoped prior to us moving there, but there are still deals to be found for a primary residence. Both Florida and South Carolina also offer good areas to purchase rental properties at drastically lower prices than my current city.

If we sell in five years and move, we should be able to pull out $155,000 in equity after all closing fees. This will allow us to put around a 50% to 60% down payment on the house in a cheaper area.

Our payments will be substantially lower at that point and the kids will be out of daycare, which will save me over $1,700 a month alone. This means I will be able to ramp up the rental real estate business.

Do you have a number you want to have saved up before retiring?

I expect that I will need an income of $3,300 per month at age 45, calculating for inflation to cover all costs. Currently, I’m about 18% of the way to my goal in monthly passive income. I’ve also recently started my website to open up another income stream, which is showing promising results.

At the age of 45, I plan to have $1 million in my 401(k) that will continue to accrue until age 59 and a half. If the rental properties and stock market money bring in enough that I don’t need to touch this money, I will continue to let it grow as long as possible before accessing it or being forced to withdraw from it due to required minimum distributions.

I also plan to have eight to 10 rental properties in the portfolio — each cash flowing after all expenses and withholdings of $250+ per month for an income of $2,000 to $2,500 per month at age 45.

My brokerage account should be somewhere between $200,000 and $300,000 by the age of 45 and bringing in dividend income as well as appreciation in the range of $1,700 to $ 2,200 per month for a total of $3,700 to $4,700 in passive income each month.

If all works out correctly, when I become eligible to also withdraw from my 401(k), I’ll be in a very good position to travel more, as that will open up a large amount of money to access each month. I can’t wait to be sitting on the beach, with my shades on, a book in one hand and a drink in the other!

What are your post-FIRE plans?

I will likely continue to work on gig work, my website and other avenues to create more passive income in retirement, as I don’t see myself just sitting around the house.

I also teach my kids about money and investing, even though they’re young. My main goal is to be able to leave my children a large sum of money in the future and for them to carry the torch.

Many families lose their wealth by the second generation due to living above-average lifestyles and subsidizing their kids throughout their adult life. I plan to teach my kids about money and one day help them teach their children so we can begin to create sustainable generational wealth.

I always wished one of my ancestors started this tradition, so I’ve decided that I’ll be the one to get our family started down the right path. Frugality and persistence can go a long way — long enough for generations to benefit from the acts of those before them as long as each generation acts responsibly and learns how to manage their wealth.

Advice for others interested in joining the FIRE movement

Three pieces of advice for others looking to join the FIRE movement is to just get started, plan big and consume small.

1. Just get started.

You can over-analyze something for far too long. All of that time spent thinking about how to use money more effectively and how to get started is better spent just starting.

Open up a brokerage account, do a little research, ask for advice from others and invest a small amount just to get in the game. Then you can spend time researching exchange-traded funds (ETFs) or companies before investing more.

Once you have overcome the first act of starting, it’s easier to continue.

2. Plan your early retirement.

Think about what lifestyle you’re interested in living, where you want to live, the size of the home you realistically need and your travel plans.

Plan how you will supplement your income through stock market dividends, appreciation, rental real estate, side gigs or blogging for passive income. These are all in your control and up to your choosing.

3. Consume less to stretch money to last longer.

You’re not going to retire early and be able to spend enormous amounts of money unless you hit the jackpot of a plan or the literal jackpot. Most of us will need to consume less in early retirement to stretch money to last longer.

To make this transition easier and increase your investments to reach your goals faster, consider beginning to audit your lifestyle and cutting down unnecessary expenses now. It will help you save more today, and be able to adjust better tomorrow when you’re retired early.

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