In 2012, I left a steady and rewarding 9-5 job to pursue my side hustle full-time. While it’s true I had gotten extremely tired of working 70- and 80-hour weeks, that wasn’t what finally pushed me over the edge. In addition to craving more autonomy and better work hours, I also wanted to work my way toward early retirement.
A lot of people thought I was crazy at the time. How could I save for retirement when I didn’t have a work-sponsored 401(k), let alone a 401(k) company match? And how would we get by without other work-related benefits, such as subsidized health care, paid vacation, and corporate stock options and bonuses?
All of the concerns people had were quickly compounded by the fact that my husband left his full-time job to pursue self-employment in early 2015, too. With nobody in this house carrying a full-time job with benefits, many people assumed we had lost our minds. But, have we?
Here’s the truth – our precarious situation can feel slightly unnerving at times. Even though I have a proven track record of providing for my family, we still have two small children to provide for.
And I want to do more than just keep a roof over their heads; in addition to providing shelter and sustenance, I want to provide them with educational opportunities, adventure, and an extraordinary life. And as importantly, I have always had a deep-seated desire to pay for my children’s higher education.
Here’s how we plan to do it:
Our Plans for Financial Independence at 46
Although we made some awful money moves before we had kids, we did several things right. That includes the fact that we started saving for retirement at our old jobs in our mid-20s, usually saving around 10%-15% of our incomes. Having that nest egg to build on was a huge relief. Still, in order to retire early, we knew that we needed to increase how much we save relative to our earnings– and continue contributing steadily.
After pouring through my options, I decided to open an SEP IRA with Vanguard right before I quit my 9-5 job. With an SEP IRA, you can save up to 20% of your net self-employment income (up to $53,000 in 2015) every single year.
With the low living expenses we have now – no car payments, no cable television, no smartphone bills, no expensive hobbies – we can afford to tuck a large percentage of our incomes away. As long as things stay the way they are, we should be able to continue contributing up to 40% of our incomes to retirement for the long-term.
Another way we have saved in the past: We both have a Roth IRA with Vanguard. Although our ability to contribute in the future may be limited due to income phase-outs, we maxed out our Roth IRAs steadily each year until 2014. (For 2014 and 2015, contribution limits for Roth IRAs are $5,500 per year, $6,500 if you’re age 50 or older.)
The other prong to our early retirement scheme: our rental properties. Last year, I wrote about the fact that my husband and I purchased two rental properties in my hometown in our mid-20s. Part of our early retirement plan relies on the fact that both properties will be paid off in about 10 to 11 years.
Since we’re 35 now, at age 46, we’ll own two properties that bring in at least $2,000 per month in somewhat passive income. Subtract expenses like property taxes, upkeep and repairs, and vacancies, and we should be bringing in a minimum of $18,000 per year ($1,500 per month) from those two homes.
In the meantime, we’ve been prepaying the mortgage on our primary residence in order to get it on a similar timeline. Since it should be paid off in less than 10 years, I’ll also be able to stop paying $1,500 per month toward our mortgage before then.
But, what about college?
Although I haven’t done everything right, I made some smart moves early on when it comes to my children’s college funds. As soon as they each got a social security number, I started contributing to a 529 college savings plan for each of them. When they were babies, my monthly contributions were only $25 per month, but that amount has grown steadily over the years. And in addition to the money I stashed away, I also put most of their birthday and holiday money in their accounts as well.
The result: If I continue contributing steadily, I believe I will have enough money to pay for each of them to attend community college or an in-state public school. If not, I should be pretty darn close.
Putting It All Together
With all that said, here is our plan: Once our rentals and primary home are paid off, we’ll have $1,500 per month in somewhat passive income to sustain us. Meanwhile, we’ll also drop our largest monthly bill – our mortgage – and own our home free and clear.
My goal is to find a lifestyle that allows us to live on $3,000 per month (adjusted for inflation) from ages 46-59. That way, we would only need to earn an additional $1,500 per month before we can start withdrawing money from our retirement accounts.
At this point, that should be a piece of cake. Part of our online business includes three websites that we own outright, all three of which bring in some income each month. At this point, I feel confident that they will continue earning at least $1,500 per month as long as we continue running them as we do now. In fact, they should even continue to grow over the years.
Also keep in mind that, although we’re shooting for early semi-retirement, what we really want is financial independence. In other words, we want choices.
With enough money in our retirement accounts and other investments, and enough passive income, we hope to secure a future with unlimited options, including the ability to continue working full-time if we want, hustle part-time, or even not at all.
As a workaholic, I am well aware that I may never be able to stop working altogether. But that’s not the point; the point is, I want the freedom to decide.
My Biggest Worries About Early Retirement
Although it might sound like I thought of every detail, there are certain components of our plan that are difficult to prepare for — the biggest one being health care.
Faced with out-of-control costs in our country and state, we joined a health care sharing ministry in lieu of traditional health coverage earlier this year. Still, it’s hard to say how long that will last.
Further, it’s hard to know how future changes to the nation’s health care system might impact our finances. At this point, health care is one issue I have chosen to deal with on a year-to-year basis, while also knowing that future changes might require us to work longer than we’d hoped.
My other early retirement worry is the fact that we’ll still have kids at home. In 10 years, my oldest daughter will be 16 and gearing up for college. It’s possible that I’ll want to continue working part-time until I know for a fact I can get both of them through college, and be able to help with other big events: things like weddings, first homes, and — dare I say it – grandchildren.
Simply put, it’s hard to plan for a future that isn’t quite here.
Why Self-Employment and Early Retirement Go Hand-in-Hand
With all of those concerns and worries in the back of my mind, I still feel that we’re on the right track. At our old jobs, we had limited income potential and could only save for retirement up to the annual 401(k) contribution maximum (up to $18,000 in 2015). Now we have unlimited earning potential and the ability to save a lot more pretax dollars for retirement.
Meanwhile, we now have the free time to cultivate additional passive income streams to sustain us, continue working to earn as much as possible, and build a happier, healthier future for our family.
And that’s why self-employment and early retirement go hand-in-hand. When you don’t have a reliable paycheck to count on, it forces to you to not only confront your biggest fears, but to do something about them as well.
Here’s the truth: All I have ever really wanted is freedom – freedom to do as I please, freedom to live the life of my dreams, and the freedom to make choices based on my needs and desires, not based on how much money I earn.
Self-employment certainly isn’t perfect. But for me, it has proven to be the fastest way to get there.
Do you think self-employment and early retirement go hand-in-hand? Are you planning for early retirement? If so, how?