This is a short post. I will not make any claims to being an investment expert, and you should talk to a professional about retirement and estate planning. But I didn't want to leave everything hanging with my friends Jack and Jill - I wanted to see them through to the end and find out where they would end up. So, here is a brief recap of their timeline and a trajectory for their future:
Jack and Jill’s Timeline
June 2010 – bought their house and bought appliances on 18 month no-interest, no-payments plan
June 2011 – Richard gets them to track spending for a month. (Kids are 2 & 4.)
July 2011 – They collect their credit reports and debt information to understand their financial picture.
August 2011 – Jill starts working from home part-time, and their new budget is implemented.
November 2011 – They worked hard and paid off their furniture account before the interest came due.
December 2011/January 2012 – Jill banked her $500/month for their emergency fund.
December 2012 – They have paid off Line of Credit, MC and Visa by now.
October 2013 – They have paid off Student Loan and Car and are now debt-free aside from their mortgage.
October 2014 – In one year they have banked six months of expenses. Now they start investing for retirement and college. (Kids are five and seven.)
January 2015 – They implement a new plan to pay down the mortgage using Jack’s raise.
Let's look at the future...
May 2022 – Their mortgage is paid off, thirteen years early and with over $50,000 interest saved.
June-August 2022 – They celebrate by saving for and enjoying a great family vacation (kids are now 11 and 13).
September 2022 – Now that they are no longer paying $1310.33 on their mortgage every month, they increase retirement investment to $1000/month, and the college accounts to $400/month. To date, the retirement account currently has $111,360 and the college account has $26,202. They have $960.33 per month freed up to do wish as they wish. Their first goal is saving for Jill and the kids to travel to an African orphanage and work their for three months. Jack will join them for four weeks, using his vacation time from work. They also start saving for their next car purchase.
September 2027 - $78,618 has accumulated in the college account. The kids are now 18 & 20. 18-year-old Bobby decides to attend college, while 20-year-old Sue has a small wedding and buys a house. College is paid for in full with a half-share of $39,309 with plenty to spare. He decides to take some of the remainder and by a car, which he gets a discount on for paying cash, and to put the rest in the bank for his own emergency fun. The wedding and house downpayment are covered by the other half. Way to be free from the start!
Onward to retirement...
RETIREMENT SCENARIO #1
December 2045 – Jack is 65. After investing $1000/month for the last 23 years since the mortgage was paid off, the retirement account now has $2,844,602. He decides to keep working half-time til age 70. Cut investment amount to $500/month for five more years.
December 2050. Merry Christmas, Jack and Jill. Jack retires at age 70 with $5,053,712 in the retirement investments. They move the money into an account with 2.25% interest compounded daily. The interest on the account pays them $108,537 per year without touching the principal, which they excitedly plan to disburse as part of their estate to their children, grandchildren and several charities.
RETIREMENT SCENARIO #2
December 2045 – Jack is 65. Retirement account has $2,844,602. They move the money into an account with 2.25% interest compounded daily. The interest on the account pays them $ 61,092 per year without touching the principal. He supplements this income by working part-time, and with a small pension.
RETIREMENT SCENARIO #3
December 2045 – Jack is 65. Retirement account has $2,844,602. He stops investing additional money, but leaves the investment active. The annual interest earned on the investment is $341,352, which even after taxes provides them with a very comfortable living. (Especially since they have no mortgage or debt.) They have the time, energy and money to enjoy their growing family, and look forward to an annual family vacation. They re-invest lump sums on occasion, and have designed their final wishes to ensure their grandchildren’s educations and their children a head-start on their own retirement savings. (Not that they’ll need it.)
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