Tuesday, March 22, 2016

How much do I need to retire?

Recently I was reading a post by Dividend Life regarding his expenses.  There was one sentence in particular that caught my eye and finally got me thinking about how much I really need to save if I am ever to become FIRE. 

I have been blogging about my FIRE approach through dividend growth investing and frugal living for a couple of years.  I even claim I want to retire by age 55.  What I never really did was figure out what I need to do to get there.

Let's start with what Dividend Life said.

"Note that based on my $3,900 budget, one Work Freedom Day requires about $128 of dividend income which in turn requires about $4,000 of capital."

So based on that if there are 365 days in a year that would amount to total capital (including reinvested dividends) of a mere $1,460,000.  Wow that is a lot of money I need to save!  Currently I can't even support the family on $4000 a month.  My base 2016 budget is $4975 a month.  Sure I could squeeze TV, Internet and phone out of it and not take a shower.  That might get it down to $4k.  The other big item to get it down to $4k would be to not have a house payment.

The house is not going to be paid off for another 24 years or when I am 66 years old.  That fact really depressed me and is probably why I never really thought about it.  I have 2 options.  One would be to refinance to a 15  year loan.  Then I have a shot of early retirement.  The other option is to sell my house for a profit and by a fixer upper with the cash proceeds.  Then live out my life in a not so nice home with less stuff (and probably be happier).

So what do I need to get to FIRE by age 55?  First would be to have no mortgage.  Second I would need to be generating roughly $4000 per month in dividends.  I have a spreadsheet I think I got from Dividend Life as well but couldn't find the post to link it.  This spreadsheet allows me to punch in yield and dividend increase.  It then calculates out your income per month as you reinvest those dividends over the years.

What I did was take the average yield (2.76%) and dividend increase (6.3%) from the list of Dividend Champions by Dave Fish and used that in the spreadsheet.  I picked the champions because they are the most stable dividend payers and are likely to be around until I retire.

The results were shocking and got me a bit worried.

It will take me investing $7100/month to get to $4020 of dividend income monthly by the age of 55.
It will take me investing $2300/month to get to $4082 of dividend income monthly by the age of 66.

If I tweak it and only buy companies with 3% yield it will drop it slightly to $2000/month until I am 66.

Keep in mind these numbers don't account for inflation.  I have never been laid off in my 18 years of the rat race but the numbers show you are more likely to get let go the higher your salary and the older you get.

Any advice from the community on what I should do?

For now I will look into my house options and see if I can get up to $2000 a month invested through my 401k, IRA and personal investment accounts.)

Thanks for reading,


Sunday, March 13, 2016

February 2016 Update


I can never say I had a normal month with my budget.  It has been over a year since we had to do any work on my wife's 10 year old minivan.  Time and the salt of winter finally caught up and we had to do some repairs.  On the bright side the van broke down on a street and not the highway.  With that said the repairs exceeded what I pay on the house.  Given the age this is accounted for in the budget at $444 per month for things like repairs and gas.

Regarding the rest of the budget we went over in the "Wants" category by $66 as I purchased some Groupons to use later in the year for some events we like to go see.  Also food went over by  $242.   We usually go shopping on the weekend for the next week so the last weekend in February was for food for the first week in March.  It all evens out in the end since January was under budget in this category.

Last but never least was the budget category of childcare.  This is the amount of money I spend on things like diapers, school activities and clothes.  It was $56 over budget this month from a "letterman" type jacket I bought for my daughter.  She helps out with the baby and watches the kids all for free so I thought this would be a nice thank you gift for her.


New this year are some savings goals.  If I stay on track I should be able to contribute to all of my goals.  They are my Christmas/Holiday fund, Emergency Fund, and Vacation fund.  Each fund I figured out what I need to save for it and divided by twelve months.  So each has a monthly target.  With the van repair I could only contribute  to two out of the 3 funds.

My next fund to add is investing.  Not sure why I did not factor that into my overall budget.  I may have to revise the 2016 budget and get that in and see if I can contribute to that goal regularly.  I have been purchasing some stocks but the funds come from savings not from my monthly income.

Overall, even with the auto repair, we came in under budget and we saved 9%!  Spring is right around the corner so with diligence we will see if the savings will continue.


On the up side I purchased 25 shares of ADM.  On the down side I received my last dividends from KMI as I sold what I had as a result of the dividend cut.  Somehow I messed up my Excel online chart and now my years show up as Series 1…Series x.  I will have to find some time to fix that while maintaining the same embedded link.

Other noteworthy stocks were dividends from T, PG and CAT.  They are all above 75% payout ratio so I will not be adding to these positions until they can get there cash flow in a better position.  I know other bloggers have been talking about CAT lately but it does seem risky at this point in time.

In general it was a YOY increase vs. last February so I am happy with the progress.  I hope your February saw you one step close to financial freedom.

Long on all above except KMI.