Progress to Date

  • Original Loan Amount: $204,000.00
  • Balance at Beginning of 5-year Goal (1/1/08): $188,983.82 @ 6.00%
  • Balance at Refinance in February 2009: $148,000.00 @ 4.625%
  • Outstanding Balance: $0.00 (PAID IN FULL!!!)
  • Latest Payment Date: April 2011
  • Latest Additional Principal Amount: $17,623.22
  • Amount Ahead of Schedule (since refinance): $121,462
  • Time Ahead of Schedule (since refinance): 7 years 10 months
  • Interest Saved Last Month: $23,972.48
  • Total Interest Saved: $28,435.55 ($1,037.74 on original mortgage; $27,397.81 on current mortgage)
  • Months Remaining in 5-year Goal: 20
  • Average Monthly Principal Needed to Meet Goal: N/A (Goal achieved)
  • Progress List Explained

Wednesday, April 16, 2008

Defining Retirement

I read an interesting article recently which illustrates the power of compounding over time. While the math is sound, I don't buy into one of the author's principal assumptions. That's his assumption that retirement begins at the arbitrary age of 67. This is the full retirement age for recipients of US Social Security Retirement benefits who were born after January 1, 1960, but it's still an arbitrary number.

Working until age 67 may be acceptable to some, but not for my wife and me. Our goal is to transition to a retirement lifestyle as soon as possible. Our assault on our mortgage debt is the main component of reaching this goal.

So how do we define a retirement lifestyle? The main asset that retirees have, and which the employed population lacks, is time. Retired individuals can set their own schedule. They can be as active or inactive as they want (depending on their health). They can even go to work if it suits them. But they don't have to work if they choose not to. This control over time is, to me, the key element of retirement.

As I write this, my wife and I don't have full control over our time. Our employers expect us to give our time to them in exchange for our salaries. Most everything we do is based on a schedule that is set by someone else: office hours, school calendars, company holidays, late meetings, mandatory overtime. Furthermore, a significant part of our "free time" is spent preparing for work. We don't have much free time that isn't already committed to sleeping, eating, or caring for ourselves.

And so, we continue to work, exchanging our time for pay. Now that we have a goal (pay off the mortgage in five years or less) and a plan (reduce spending and maximize additional principal payments), we see work in a new light. Instead of exchanging our time solely for money, we're exchanging today's work time for future free time. Every month I work full-time in 2008 represents a month I can work part-time in 2013, perhaps, and another month I can go without working at all, maybe in 2018. This gives more purpose to the daily grind. I'm not working to make my employer happy...I'm working so that I can shift control of my time from my employer to myself.

Fortunately, my wife and I have been good "retirement" savers, and find ourselves in a position to best the hypothetical return of the 26-year-old described in the article, assuming (yes, another assumption) that our investments match the author's proposed 10% average annual return. Unfortunately, that money will remain off limits until one of us is at least 59½ years old, unless we want to pay a penalty (probably not) or the laws governing retirement accounts get changed (plausible, but not likely). So our next challenge will be to find a way to bridge the gap between freedom from mortgage debt and complete freedom from employment. However, we are still a few years away from meeting that new challenge. I think it's best to focus on one goal at a time.

First things first! Death to the Mortgage.


SavingDiva said...

Right now, I'm saving heavily in retirement accounts that have penalties for early withdrawl. However, I hope to diversify and start saving for "early" retirement. I have a mutual fund (about $3500 right now) which I'm saving for that purpose.

The Executioner said...

Nice work. If I could start over as a young twentysomething worker, fresh from college, I would put more effort into saving in a non-retirement account. I neglected this part of my saving back then. As a result, my retirement savings are healthy, but I feel they aren't doing me much good right now. I'm sure I'll be happy to have them when I am in my 60s. But it would also be nice to have some current income from investments outside of the tax-sheltered accounts. Good luck to you in meeting your savings goals.

Anonymous said...

Just a quick belated note: You can pull some money from your retirement accounts during early retirement through a 72t distribution. Once you start a 72t, you must continue distributions until you reach traditional retirement age.

With that said, I'm hoping we won't need to use law 72t, and also saving outside of retirement accounts. It's my money, and I don't want the government deciding how much I can pull each month. :)

The Executioner said...

72t is the same as substantially equal periodic payments, right? If so, I have heard of them. But thanks for the reminder.

I'm motivated to get rid of our current debt (the mortgage) before focusing on future streams of income. But the 72t might come into play at some point.