Planning for the Long Haul

My Family's Lifetime Financial Plan

Recently, I mentioned that my wife and I have developed a financial plan to cover our entire life until retirement, and several readers wrote to me asking for more details about this plan. So, let’s take a look and see what I was talking about – and perhaps it will inspire you to do the same.

The first step for my wife and I was to sit down and identify our biggest goals in life. What do we really want to do with the rest of our lives? What do we dream about? It really came down to three big dreams.

Defining the Biggest Goals

1. Raise our two (and likely more) children with every opportunity in the world and lots of growth experiences

This means a lot of things: saving for college, providing them a top-notch education, giving them everything they need to discover and explore their passions, traveling extensively (and off the beaten path, too, to observe how a diversity of people live), reading a lot, and so on. If there’s an educational opportunity that works for our children, we don’t want our finances to stand in the way of it.

2. Buy a significant patch of land, mostly forested, out in the country, and build a reasonable house on it

This is something we’ve always dreamed of – a nice, large house out in the country for our kids to finish growing up in and to come home to, with plenty of space for them to sleep when they come back and bring their own children. My wife’s grandfather has this, and it’s so pleasant that it’s even come to feel like home to me – I look forward to visiting there, playing cards with my in-laws, and just enjoying pleasant and relaxing company. We both really want to have such a place for our own children and grandchildren to come back to. We want to be able to purchase the land and commence construction before our children are out of eighth grade, intending to stay in our current school district.

3. Retire as young as possible and commit the rest of our lives to community volunteerism

Our third major goal in life – likely the one taking center stage when the first two are complete – is to retire young and focus on community and political volunteering for the rest of our adult lives. Running for local political offices, serving on boards, doing volunteer work, and campaigning for other candidates sounds like a wonderful retirement for us.

Our Plan

We actually sketched out a year-by-year plan with specific goals reaching through our youngest child’s high school graduation, setting targeted goals for each year. We attempted to define flexible goals that could still be met even with significant life changes. Here are our goals for the next three years.

1. By the end of 2008

We intend to have fully eliminated my wife’s student loans, contributed $1,200 each for the year to our children’s 529 plans, and increased our retirement savings to 1.3 times our combined annual living expenses.

2. By the end of 2009

We intend to have fully eliminated all of our student loans, contributed $1,200 each for the year to our children’s 529 plans, and increased our retirement savings to 1.45 times our combined annual living expenses.

3. By the end of 2010

We intend to have $20,000 in our portfolio saving for our country house, contributed $1,200 each for the year to our children’s 529 plans, and increased our retirement savings to 1.6 times our combined annual living expenses.

Some Additional Notes

Obviously, this raises a lot of questions, so I thought I’d address some of the more obvious ones right away.

1. Acceleration

We are intending to accelerate this as much as we can. For instance, I’m hoping that my wife’s student loan will be gone this July, so we can focus in on eliminating my own student loan, which might be done in early 2009. This lets us go ahead and start with our investing plan in early 2009 instead of in 2010.

2. Our current mortgage

Our mortgage has a low enough interest rate that we’ll just continue to pay it off, a payment at a time, until we’re ready to move on, at which point we’ll use the proceeds from the house sale to pay off the remainder of the current mortgage.

3. Retirement planning

Not only are we doing much better than many metrics suggest that we should be doing at our age, we’re also trying to set up sources of passive income to help guide us through.

4. Educational opportunity savings

Right now, with our children so young, the educational opportunities are somewhat limited. In the future, we plan on budgeting a notable portion of our annual budget to such expenses, particularly travel and educational costs.

Comments? Questions? Fire away in the comments.

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  1. Erick says:

    Trent,

    Excellent article and I really enjoy TSD. Have you thought about maybe writing an article or two on the housing market and how to whether this storm? This is of particular interest to me as we have become a victim of watching our equity disappear within about 2 years, both in our own home as well as a rental property I acquired through marriage.

    In short, we are strapped to these mortgages and see no end in sight. Well, that’s my story and I would like to hear about others’ through one of your articles. Just a thought. Erick

  2. Sugar says:

    How much money will it take to buy a bunch of land, build a house, give your children all possible opportunities, and retire early? As in, what’s the final number you need to achieve?

  3. Good post as always and something that I hope to do in the future with my wife as well.

    My question regarding your post is this. What percentage interest are the student rates at? I have a decent chunk of student loan debt as well that I am just letting it ride because the rates are so low.

  4. Kevin says:

    I am sure you may have thought of this, but maybe some of your reader’s are less familiar with buying land.

    Forested land can often make you money back. Selling the lumber on premise can often pay back a significant amount of the purchase price. Just be sure to use a logger who would respect your desire to keep the mess in your woods to a minimum.

    A significantly aged forest for example can get up to $2,000 a acre in lumber. Wait twenty years and repeat.

  5. Johanna says:

    If energy prices continue to rise, will that affect your plan to live in a remote location?

  6. Erin says:

    Great post. I just wanted to ask if you had thought of doing any traveling before the kids start school? It can be very rewarding for them even if they are young, and it makes traveling outside the high season so much easier! Many young families I know have spent time in places like Costa Rica, Panama, Italy, or even Bali. Central America is close, inexpensive (although Costa Rica less so) and fun for kids. Plus it would help them kick start their language studies – knowing Spanish is very convenient and opens to the doors to travel all over the Americas.

  7. Jay says:

    Good article should help lots of people.

    Can you please elaborate on what you have in mind for passive income?

    -Jay

  8. I would also like to know what your passive income plans are. Of course, if they are not fully set in motion, I would not expect you to share such details.
    -Tyler

  9. JM says:

    Good Luck!

  10. Lisa says:

    Great post, Trent. I have grown children and made a lot of mistakes with underplanning. I also had unexpected expenses, and wonder if you had plans for that. Cancer, which meant no pay for a while and a large medical bill, combined with a wedding of one of my children put me back quite a bit. Do you plan for things like that as well, and how?
    Lisa

  11. Vered says:

    Wow, you are definitely a planner. :)

    I think it’s a highly reasonable, achievable plan, assuming self-discipline (which you obviously have) and the market’s cooperation (which long-term has definitely proven itself).

  12. Julie says:

    Thoughtful plan. I am also interested in the passive income. I have an idea of what it is in my head, but concrete examples would be helpful.

  13. Faculties says:

    Interesting and thought-provoking post. One small quibble: it’s not “for my wife and I,” it’s “for my wife and me.” After all, you wouldn’t say “for I.” Apart from that, excellent post.

  14. A.M.B. A. says:

    Dave Ramsey often advises those with very young children to put in $200 per month per child for 529’s. He claims that should be sufficient to cover the cost of a state university.

    Do you have contingency plans when child #3, #4. etc. arrive? For example, one of you may want to be a SAHP at that point, the child may have a disability requiring a SAHP (lot of medical appt, for example) or other expensive need, etc.

    I also suggest international traveling with your children during the preschool years. They do get a lot out of it and it can inexpensive. For example, usually free admissions to museums, etc and not being charged for public transportation w/ little ones are very common. We’re just ending a year in China with our 5 and 6 year olds. I feel this was the perfect age – they learned the language, can walk on their own and having them with us added very, very little to our budget. Other than major transportation costs, not much additional expense at all.

  15. yvie says:

    I don’t know, Trent. Saving for a large home in the country,saving for the college tuition of three children, of course giving them the best of all opportunities, AND retiring early. Of course it sounds good. Who wouldn’t want this? All you have to do is make your own soap and manage a couple of investments and voila! The perfect life. I agree with another writer who said that you need to keep in mind energy costs; it might be expensive to have a place in the country when you have a further commute (those teenagers will need to get to their jobs too…not too many buses down rural roads…) The grandparents could afford a large house on a large lot back then, but it may be cost prohibitive now. I don’t care how well you plan, you need a substantial income to achieve these goals, not just being smart and frugal. But maybe this blogging has given you the income to achieve these pie in the sky goals. Hope it keeps up for you.

  16. Christine says:

    Can you please talk about how you chose the figures to shoot for? Did you pick a number after some research and aim for it, or are you just saving as much as you can with these as the goals for whenever you get there? Those goals line up very closely to mine (and my boyfriend’s), but when one isn’t making much money it’s hard to guess at numbers which are so large and out of reach.

    Also, you didn’t mention where the $20,000 comes from by 2010 in this post and where you’re keeping it, although I think you’ve talked about it before.

  17. Lisa says:

    Will you be using public schools for your children’s elementary, middle and high school years? And another poster brought up the question of one of you being a SAHP, which might be essential when your kids are older–their activities demand lots of ferrying around. Add in 2 or 3 more kids, and there go the family dinners (not to mention weekends!).

  18. Don Lim says:

    Trent,

    Great post. I think everyone should be thinking about their “final number.” My feedback is, and some of the comments above seem to concur, that you could write quite a few articles on this topic alone and later amalgamate it into one piece for downloading; relating in detail how you and your wife planned your entire lives together from a financial perspective. I can see it something like your “31 Days To Fix Your Finances: A Wrapup.”

    My guess is there are many people out there, including myself, who would like to figure out how they could put a number on their retirement plans and say, “By 20xx, I would have accumulated $## million to pay for…”

  19. Frugal Dad says:

    Trent, I’d like to hear more about your passive income sources you are setting up. This has been something that has interested me since reading Your Money or Your Life. In the book I think the authors recommended investing in Treasury Notes, something that isn’t as popular now as it seemed in the early 1990’s. Do you plan to invest in bonds, dividend-producing stocks, annuities, etc. to spin off a sizable monthly income down the road?

  20. Mutch says:

    Trent, Brilliant article as usual! I was curious, you mention you are trying to set up passive income streams. How exactly are you planning on doing that?

  21. Lo. Price says:

    Sounds like a pretty good plan. I would caution against sticking too closely to those projections for your retirement account, especially in the short-term. I would think long-term expectations for retirement savings (i.e. 5.8x expenses in 15 years) are more realistic, simply because of the unpredictable nature of the market in the short-term. In other words, housing could continue to slump and your portfolio could lose 20% in the next year or two, even as you add to it, making your additions and losses basically a wash for that time period. This early in your retirement saving years you really should be investing in an aggressive portfolio (and it sounds like you are), so the ups and downs of the market in the short-term will make it hard to closely meet those goals.

  22. Jack says:

    Trent, just out of curiosity, are you concerned at all that if you give your child EVERY opportunity presented to them, they might become… spoiled and take certain privileges for granted?

  23. K says:

    yvie – I don’t think Trent’s dreams are too lofty at all. In fact, I have almost the same goals as him, although mine are a little easier to achieve because a family member works at a college, giving reduced tuition, and another family member owns many acres of wooded land for us to build on when we want. The country home isn’t likely to cost too much more than his current house, so saving for early retirement and kids tuition shouldn’t take more than 25% of their pay. You should be saving that much anyway, and if you can’t save that much, then you need to be “making your own soap” as you say. It’s all about priorities. Do you want to be able to send your kids overseas or do you want to pay for them to sit in front of cable TV all day?

  24. Trent, I would be interested in more information about how you set your debt repayment and retirement savings budget given that your income is now unstable. For example, how are you coming up with 1.3 times your salary, since you no longer have a salary.

    I’ve heard Dave Ramsey’s suggestions for budgeting with an irregular income (he offers this free worksheet), but I would love to see more from you on this subject.

  25. Fern says:

    I, too, like to plan ahead and map out my life as much as possible, surely becus my upbringing was anything but stable.

    But as a single woman with no kids, my plans are much more narrowly focused and perhaps not as detailed as yours.

    They are as follows:
    1. Pay off my mortgage in 8 yrs. I’ve got a $72K balance now and have been putting an extra $425 monthly toward it. I know many people would say the $ would be better put toward investments, but i value peace of mind just as much.

    2. After the mortgage, my biggest expense is retirement, and at 48 I have savings of about $420,000, not including my house which has a market value of about $380K today, minus that $72K balance. While I max out my 401k and IRA, i feel i could be doing better but my income only goes so far.

    3. I plan to retire from full time work at age 60, 12 years from now. (There was time i said i was going to retire at 55, but that ain’t gonna happen, unfortunately.) To bridge the 5 year gap,health insurance wise, between 60 and 65, when I can pick up Medicare, I will find a p/t job with health insurance, Not an easy task, but there are some companies which do provide health insurance for part-timers, Starbucks is one and i understand that Costco is another. Plus i’d like to revive my freelance PR work that i dropped when i started a new job last January which is just alittle too demanding of my time to continue the freelance.

    My goal is to defer collecting SS for as long as possible so that i can maximize what i get when i do tap into that and to live on my current savings and p/t income, which will be up to the amount the feds say you can work without paying taxes, about $10K a year, is it?

    I hope by then i’ll have a partner. I don’t see myself marrying now, but i would live with someone and i hope i have a traveling partner as that is something i haven’t done much of since my 30s, mostly to Europe and Central America. I also want to get a dog and continue gardening, get more involved in my community either through volunteer work or holding local office.

    At some point i envision selling my home, which requires a LOT of maintenance, and buying a condo, though that would require a huge adjustment.

  26. Zach says:

    Maybe it is different in Canada, but I would pay off all debt before investing. I am sure you covered your bases though.

  27. Fern says:

    Oh, i have no other debt now aside from the mortgage, and i intend to keep it that way. When i need a new car (my 9-yr-old Honda has just 91K on it) i will pay cash for a new Prius or something with better mpg i a few years time)

  28. KoryO says:

    Trent, there’s nothing wrong with saving a little bit outside of a 459 for your kids now while they are little. I do that for my little guy (20 months) right now. He “gets” $5 for each holiday (determined by me, so it could be something as off the wall as “Supernatural Avocado Day”), plus a little extra when we return our bottles for the deposits.

    I’ve scraped up about $400 that way in an ING account for him so far.

    I was going to have it be his little independence fund for setting up his life after high school. However, your previous posts about how there are other things to education besides college got me to thinking….and I figure if he wants something extra along the way (an instrument for music class, a class trip, etc.) and we don’t have the money in the budget, we can tap that fund for him so he doesn’t have to miss out.

    It sure beats blowing that cash on toys or playground equipment he won’t play with, anyway.

  29. Erin says:

    I love the idea of the house in the country. I’m glad you guys are thinking not just of retirement funds and college tuition, but where your grandchildren are going to spend summer vacations :-) That’s what it’s all about!

    I do have a question. I have numerous philosophical issues with paying for a child’s college education, but I understand that many people find pride in being able to contribute to that goal for their children. However, when it comes to putting money in a restricted fund like a 529, my question is this: What if your child decides against going to college? This is not a flip question, as I’m quite serious – what if your child decided to pursue a different passion and felt that college was not for them? Would you allow them to cash out the 529 (and take the tax hit)? Would you give split the money among your remaining children who did plan on going to college? I’m interested in hearing other options you would consider at that point.

  30. Trent Hamm Trent says:

    Erin: That account is theirs. I would allow them to cash out the money and take the tax hit provided they were using it for a reasonable purchase (house, car, etc.).

    “how are you coming up with 1.3 times your salary, since you no longer have a salary.” – I’m using my previous salary (2006) with inflation adjustment, since our spending hasn’t really changed too much since late 2006.

  31. Greg says:

    Responding to comment #4: Kevin, can you elaborate on the details of your land buying, lumber harvesting plan?

    How expensive and time consuming is it to replant your land once, you’ve harvested the lumber?

    How profitable is this method really?

    Thanks!

  32. kellykelly says:

    FERN — #25

    So good to see another single woman with no kids posting here!

    You sound like you have things very well set up, and your goals (dog, travel, etc.) sound wonderful.

    Good for you!

    My life goals? Um … basically having the most stimulation — relationships, service, “art” — with the least stress. That’s why I live solo by choice (grew up in a huge family) and left my job to freelance from home.

    Self-employment is certainly stressful, but a “real job” was far worse because I spent so much time commuting and away from the house, which is a PAIN to maintain. Much easier if I can run out at 11 a.m. and trim the hedges for 15 minutes (BORRRRRRRRRRRRRRRing).

    :-)

  33. Julie says:

    I’m curious about your above comment about using your previous salary because your spending hasn’t changed. That doesn’t make sense to me. Your spending not changing won’t make a difference…if you are not bringing in the same as you did previously, then you will have less to save regardless.

    My question is how you organize and chart your progress. I would love to see visuals of this. We too, have goals, etc for the short and long term but they are all over the place. Also, you are young…how often do you re-evaluate your goals/dreams? I am only 5 years older than you, yet my goals/dreams have changed quite a bit since I was 30. Thanks.

  34. George says:

    This article reminds me of what is was like to be young and naive (and responsible). If 10% of your projections/intentions pan-out, you’ll be doing well. It’s good to have goals, but, you can’t force things.

    In general, you should plan to accumulate a certain dollar figure (Y * 1 million), which will give you the freedom to do what you want. Y = ROM (rough order of magnitude) of what you want in life (e.g. owning a Castle in Scotland vs. having a nice, paid-off house in Iowa). For a youngster like yourself, USD$2 million is likely the *minimum* amount of money you’ll need to accumulate.

    Don’t forget that healthcare in your post-retirement years will likely cost you (out-of-pocket) several hundred thousand dollars. Not to give you a hard-time, but, get your weight under control (your waist under 40 inches) and your healthcare costs will go down.

    Figure out Excel or Open Office’s spreadsheet PV, NPV, FV functions and spend an afternoon playing around with the numbers. It’s fascinating stuff.

    Keep your expenses low (house, cars, and investments), have fun, and party like it’s 1999 (but only once a year)…

  35. Kim says:

    Trent,
    Have you ever considered having your children pick up a portion of the cost of their schooling? My parents could have easily put me through college, and they did help me out some, but they still had me take out a few student loans. Yeah, it sucks paying them off, but I have most certainly learned the value of education.

  36. Andrew says:

    Trent–just remember that life has a way of disrupting even the most thorough planning. Everything can be lost–or eveything can be gained–in as little as a minute.

    I don’t think you are someone who would come totally undone if things didn’t work out exactly as planned, but there are those who are.

  37. getagrip says:

    @Erin and Trent

    The 529 money does not have to be theirs, as the “owner” of the account, you can change the beneficiary to another child, to a cousin, to a grandchild, etc. or even to yourself if you need a late career retraining opportunity. As a matter of fact, Trent’s definition in his response concisely states it’s not their’s, it’s his and his wife’s gift to them and said gift is dependent on them defining a purchase or use acceptable to Trent and his wife. Trent’s premise is that he will have a child who will be a reasonable, responsible kid and hopefully that will be the case.

    My opinion is that you need to let your children know that the money is your money, not their money, and that you are planning on gifting it to help them to further their education (be it college, trade school, culinary school, whatever). Other options can be discussed and that is between you and your kids. But if you train them to think of it as their money, IMHO you are morally committing to just handing it over when they turn 18. Anything less and it isn’t really their money and you’ve been lying to them.

  38. Harmonic Wealth Fan! says:

    What a great article – and congratulations on your success!
    I’ve always been a little skeptical of the new-agey books my wife reads about self-help or changing your life. But she was so impressed by this one (James Ray’s Harmonic Wealth) that I agreed to read it. AND I CAN HONESTLY SAY THAT IT ROCKED!
    What I liked about James Ray was that he didn’t just sell you all these fluffy ideas and leave it at that. James Ray breaks it down into applicable lessons and examples and even provided an online study course that helped me to apply the book to my life and come up with ways I can be more “Harmonically Wealthy” – wealthy in all the “Pillars” or areas of my life. James Ray doesn’t just address the money issues or the relationships – he says that all “5 Pillars” – financial, relational, mental, physical, and spiritual – have to work in harmony for you to achieve a truly wealthy life. I like that approach because it makes sense to me and is about results, not hand-holding.
    Here’s the link to his website: harmonicwealth.com/read
    – A Harmonic Wealth Fan

  39. Erin says:

    @ Trent

    Thanks, Trent, for your answer. I think your position is very reasonable. We chose to invest in a non-restricted fund for Hayden’s future – we have the understanding that he may use it for college if he wishes…or a car, or a house, or to start funding his own retirement…or to travel Europe or to pay rent for a time while focusing on his art…we don’t consider ourselves to be saving for his “college” so much as his future. We think ceding the potential tax benefits of the 529 was worth having more options and greater control over the money.

    @ getagrip

    You’re absolutely right about being able to change beneficiaries; that’s definitely one of the reasons I wondered if Trent and his wife would simply roll over the tax-sheltered earnings to another beneficiary (i.e., one of their other children) rather than let their child cash out the fund. I also agree with you that if you are not prepared to hand over the cash at some point with no questions asked, you are much better off to teach your children to consider the fund your money, under your control, and to be distributed at your discretion. I think if that’s the case, it’s also a wonderful idea to have some amount of money that is specifically for the child, to use at his discretion. For instance, my grandparents bought us all McDonald’s stock years ago – some of my cousins cashed it in their teens (for cars, mostly), some in college (for tuition and CC debt, mostly) and some of us still have it! It was a good way to get financial experience without having control over more substantial funds our parents might have earmarked for specific goals.

  40. Sandy says:

    I love to plan out as far as possible, too. I agree about traveling with young ones (once they are past 3, they are marvelous travellers, from my years of living abroad, and the travel that entails).
    As far as the big house out in the woods, I would offer some caveats. With Peak Oil upon us, meaning continually higher energy costs, I would be leery of living too far out there. Driving kids to all their afterschool activities can be a haul, and if you live close to town, or in town, your time (and gas costs) is better served. We live 1 1/2 miles from the center of our town, and my 14 year old has been getting a lot of mileage on her bike, as she goes on her own power to town for her errands (library, etc…). Hard to do when you are far out..also, the sense of independance she has gained is incredible.
    We are striving to get done with our mortgage, for the security issue first and foremost, but also, costs for opportunities for teens is very high!
    For example, in the (very good public) school system that we are in, they offer international experiences for the different activities. Our orchestra just returned from St. Petersburg, Russia, and the French, German, and Spanish clubs go abraod every 3 years. Those trips are pricey, but great opportunities for the kids. The cost of those things , AND continuing to save for their college will be cash-flow drains. Having the mortgage paid off will give us that cash flow to make these things happen for the girls if they want to do these things.
    All I’m saying, is life comes up, and it’s EXPENSIVE!!! Save, save, save, and you’ll be able to do what you want, when you want!

  41. Julie says:

    question for Sandy, comment above. I would love to know where you live so I can read more about the public school systems there….sounds wonderful. :)

  42. Sandy says:

    Just south of Cleveland, small town called Medina.

  43. MB says:

    Thanks for the idea, Trent. You inspired me and my husband and I did this yesterday. We’re in our mid-twenties, and we realized that our thirties will be a busy decade due to children, careers, and housing. We’re now going to focus on getting organized and ready to face the whirlwind. I think we will have another meeting soon about how we can save more.

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