early retirement

Changing My Investment Strategy

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I have decided to change my investment strategy for retirement.  My previous strategy was to max out my retirement accounts first before setting aside any additional savings.  Since my plan is to retire at 50 though it doesn’t make sense to have most of my savings in retirement accounts where it will be difficult for me to access them without paying penalties.  The main benefit of having your money in retirement accounts is that it is allowed to grow tax-freee.  This isn’t much of a benefit to me due to my short time frame and low tax bracket.  I expect to stay in a low tax bracket for the foreseeable future.

I’m also not happy with the performance of the mutual fund in my Roth IRA.  I know the stock market is taking a beating but I don’t like the idea of paying a management fee to lose money.  I could lose my money myself.

My new strategy is to invest in dividend paying stocks.  I won’t go into too much detail since this isn’t an investment blog.  Right now I have a portfolio of five stocks and I plan to expand that to ten to fifteen stocks.  I’m more concerned with yield than capital appreciation.  I want companies that will continue to increase their dividend.  This way I can use the dividends to pay my expenses and still have a hedge against inflation.

So far my results have been pretty good.  I’ve had the stocks about two weeks and I’m up a small amount and I should receive about $250 in dividends for the next year.  This represents an almost 10% yield but that is skewed due to one very high-yielding stock.  Most of my stocks are paying around 6%.  If anyone wants to know how I chose my stocks I’ll do a post on that.  My selection process is somewhat based on guessing though so I wouldn’t recommend anybody follow my picks.  I feel I’m taking an acceptable risk to have a good shot at retiring early and am willing to live with the consequences if this strategy doesn’t work.

October Investment Income- $41.34

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Last month was not a good month for my retirement savings. I lost about $1000 in my Roth IRA which was a significant amount considering I only had $5500 in there.  I managed to increase my monthly income but only because I added $3000 to my savings last month.  Increasing my monthly investment income from $32.01 to $41.34 was good though.  Unfortunately I won’t be able to add a large amount to my retirement savings until sometime next year.  I’m rethinking my investment strategy for retirement and I’ll share that strategy in a post later today.

Disclaimer:This is not my actual investment income. To get this figure I first add up my retirement accounts, emergency fund, and any other money I consider permanent savings.  What the total of my savings would earn at 6% interest for a month is my monthly investment income.

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Could I Retire Now?

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Last month my alternative income was larger than my expenses.  This is the first time that has happened.  If I could continue to do that I could potentially “retire” now.  It would be more accurate to call it semi-retirement.  I’d still do things to make money I just wouldn’t have a job and I could set my own schedule.

There are several factors that keep me from being able to retire now though.  The first is that last month my income was unusually high and my expenses were unusually low.  In a normal month my expenses will still be higher than my alternative income.  Also, once I’m finished with school I’ll have to start repaying my student loans.  I’ll be on an income-sensitive repayment plan so my payments might not be more than I’m paying towards debt now but there is a chance they will go up.  One more thing is even if I do get to where my alternative income is usually higher than my expenses I need to have a safety net for emergencies and unexpected expenses.  Right now I only have about $3,000 in savings outside retirement accounts.  I don’t consider that anywhere near enough.

For me to be able to retire I need to increase my income so it is consistently more than my expenses.  My expenses are already pretty low so I can’t cut much more there although I do believe I could still lower them more.  I need to focus on increasing my income and saving money outside of retirement accounts and I still have a long way to go on those.  The fact that my income was higher than my expenses last month though makes me feel good about my chances of retiring at 50.

September Investment Income- $32.01

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My September investment income dropped to $32.01 from $34.87 the month before due to decline in the stock market at the end of the month.  This is the first time my investment income has dropped since I began tracking it and I hope it is the last. That makes my potential early retirement a little farther away.

I’ll be almost maxing out my Roth IRA this month.  That combined with my mutual fund hopefully at least partially rebounding should bring my monthly investment income back up to where it used to be.  I’m not going to be able to fund my Roth IRA for the $5,000 allowable amount because I haven’t had $5,000 in employment income this year.  I’ve only had a little less than $3,000 in income.  I waiting to fund my Roth with the full amount of my employment income though because I’m thinking my former job might force me to cash out my 401k.

I suppose I could set up a Solo 401k or SEP IRA to put some of my business income in retirement savings.  I don’t plan on doing that because I don’t have much more money to put in retirement savings this year.  I’ll probably do a post sometime weighing the pros and cons of opening a Solo 401k or SEP IRA or neither sometime soon.

Making Money on the Side

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One part of my plan to retire at 50 is to continue to make money on the side. That might more properly be called semi-retirement. However, if I don’t have to work and can make money when I choose to that is good enough for me.  Any money I earned would be to do things beyond my ordinary budget or to provide a larger cushion of savings.

There are many ways to make extra money.  I’ve covered a few of them with my alternative income ideas.  There are a lot of blog posts out there on how to make extra money.  Here are a few of them:

“Need extra income? Here are some ideas”  from MSN Smart Spending.

“11 Great Ways to Earn More Money” from Free Money Finance.

“5 Ways to Earn Extra Cash” from Get Rich Slowly.

“26 Ways to Earn Extra Money” from The Wisdom Journal.

Not all the ideas are non-job ways to make money but there should be a few ideas there that will work for you.  If you focus on thinking of ways to earn extra money more ideas will probably come to you.