How an Executive Assistant Who Recently Started Saving for Early Retirement Does Money

Kara (not her real name) is a 35-year-old executive assistant in a Midwestern suburb.

So, Kara, how much are you making?

I make $60k annually, plus another $4,500 or so in bonuses. Do you want any joint info (with my husband’s income) or just me?

However you think about your finances makes sense.

Well, we keep many aspects about our finances separate, but ultimately look at them together in terms of long-term planning. Combined, our income is about $235,000/year.

How does that number compare to your expenses?

We spend a lot less than we earn. For example, last year we saved about $103K. Our incomes were also lower last year (we both switched jobs mid-year and got raises).

How much lower?

Last year we made about $194K.

So last year you made $194K and saved $103K, meaning you spent roughly $91K over the course of the year? Where did that money go?

Well, a lot of it was taxes. The $194K was a pre-tax number — so, at a roughly 25 percent tax rate, around $48,500 went to taxes. That means we spent the remainder, around $42,500.

That went toward a combination of mortgage, home maintenance, cars, insurance, gas, medical expenses, food, etc.

2016 was our first year of being all gung-ho about saving for early retirement. So we really drilled down into the details of our spending and became frugal maestros.

Our mortgage payment is pretty low, about $1,400. When we bought our home, we intentionally purchased one far cheaper than we could afford. There were many reasons for that, even though we weren’t yet on the early retirement train—and one of the big reasons was that we don’t have kids and don’t plan to. That meant we didn’t need a big house, and we live in a pretty low cost-of-living area to being with.

Okay, this is all really interesting and I want to know more! You decided to start saving for early retirement in 2016? What prompted that decision?

Well, sometime in 2015 I found Mr. Money Mustache online and got hooked. I read all the archives over the course of a couple months, and every few days at dinner I’d tell my husband about whatever posts I’d read that day, and how maybe we should start thinking about early retirement. At first he basically thought I was crazy. This was actually an interesting role reversal, because historically in our relationship he’d been way more responsible with money and was more proactive about saving for retirement.

So I kept bugging him to look at MMM, and to start doing the math. He’s a software engineer and very analytical, so I knew he’d get there eventually. Until he did, I guess some part of me was scared that somehow I’d misunderstood the whole idea. I mean, I’m pretty good with math too but I don’t have an engineer’s brain. For these kinds of hard-data issues, I tend to defer to my husband (wow, that sounds so 1950s).

But anyway, eventually I got him on board and excited about the whole idea. This was maybe in September or October of 2015. And we decided that, in the new year (2016), we’d begin our quest to retire early.

Nice! What did you start cutting back on? Or were you already saving at a pretty high rate?

We cut back on pretty much everything! We had been saving — he’d been contributing to his 401(k) at the federal maximum of $18K, and I was contributing to mine enough to earn the maximum company match. He also fully funded an IRA and had an investment account, but I wasn’t doing those things yet.

We cut back on dining out a LOT. We also cut back on hobby spending — books and quilt fabric for me, electronics and HAM radio stuff for him.

We also spent less on our house — we didn’t skimp on the bigger stuff (like we built a deck last year and spent the money to make it nice), but we no longer drop $250 on a trip to IKEA for random stuff we don’t actually need.

Awww, but that kitchen thing shaped like a cute thing is SO CUTE! 😉

Totally! And I love IKEA so much. I actually went there the day after the election, just to make myself feel better because it’s my happy place. I didn’t buy anything though.

Do you know how long it will take to reach your early retirement goals?

Our original estimates (that we made last year) put our retirement in the spring of 2024. Then we both got significant raises which bumped up our overall annual income by $70K, and that meant we would likely reach our goal numbers earlier. However, now there are so many questions about the future of healthcare that could have a huge impact. My husband has a pre-existing condition and takes a medication that costs, no joke, $36K/year. With his employer-based coverage he pays literally $10 a month.

So, if coverage for pre-existing conditions disappears, or if it becomes impossible to buy insurance on an open market for a semi-reasonable price, that could definitely mean we’d need to work more years, or consider moving to another country, or who knows. It’s very fluid at the moment.

I am dreading whatever comes next re: healthcare. I keep hoping it won’t be terrible.

It’s going to be such a nightmare.

I mean, I hope I’m wrong, I really do. And it’s not like I think early retirement is some right we’re just entitled to because we happen to want it. But being at the mercy of an employer-based plan, after saving over a million dollars to provide for your expenses indefinitely, just to make sure you don’t DIE, feels wrong.

Agreed.

But assuming that healthcare doesn’t collapse, you’ll save that million, and… live off your investments? What is your strategy there?

Yeah, pretty much. Four percent is considered a “safe withdrawal rate,” meaning you can plan to withdraw 4 percent of your investment each year and the gains will cover those withdrawals, plus inflation. Using the round number of $1 million, it’s probable that we’ll be able to withdraw $40,000 per year for expenses, in perpetuity, without the principal ever reducing. In our case, we plan to save a bit more than $1 million before retiring, just for extra cushion. Maybe $1.2 million or so.

This is also part of why we reduced our spending. We are conditioning ourselves to live off of less, which means when the time comes to quit our job and live off our investments, we’ll already be acclimated to that income level.

Do you have a financial advisor? How are you determining where to invest your money?

We don’t. We both have 401(k)s, and they have various plan options to choose from — for mine, I chose a “target date fund,” which is managed by the bank that administers my 401(k). Since you can’t withdraw from 401(k)s before age 59 1/2 without penalties, I picked the target date fund closest to my 60th birthday.

So that fund is more risky now, with more stocks and less bonds, but will become more conservative as time goes by and the “target date” approaches.

We also have IRAs. For the rest of our money, it’s mostly in index funds at Vanguard and Charles Schwab.

Over the weekend we just did our February accounting session (we just sit down together each month and go over all the expenses and our progress toward savings goals), and we passed a milestone; we are officially quarter-millionaires!

Congratulations!

Thanks!

So your 401(k)s and your IRAs are essentially untouchable until you reach 59 1/2, right? That means you’ll be living off the dividends from your index funds for the years between early retirement and age 59?

Yes, that’s right. So the index funds are in what’s generally called our “taxable” accounts, meaning they aren’t tax-advantaged in any way, unlike the 401(k)s and IRAs. So all the money we put there is after-tax money, hence the name.

Right now, we put $5,200 per month in our taxable accounts. It has been so fun to see the progress, and it’s gratifying, though not without pitfalls. Recently I’ve been experiencing a bit of Mustache Rebellion.

Which means… you wish you could go back to Ikea and buy something?

Ha! Pretty much, although I’ve taken it a step further; I’ve been giving myself permission to spend a bit more. A few weeks ago I impulsively booked a solo trip down south later this month. I got a really nice Airbnb, and paid for literary festival pass, and I’ll be doing some eating out and taking taxis and whatnot.

And just yesterday I went to the mall and bought this TUMI backpack that I’ve been coveting hardcore. It was absurdly expensive, probably the most expensive bag or clothing item I’ve ever owned. But I just love it so much, and there was a sale, and I was sick of telling myself “no.”

How much was the backpack?

$504, and that was with the 20 percent sale.

Nice. I think that would be the most I’ve spent on bags or clothing, too.

Like, in NO universe was that a necessary or practical purchase. I just loved a thing, and I wanted it, and I feel like I’m so responsible with money that it was okay to go ahead and get it.

Where does that spending money come from? Do you put a little less in your taxable accounts that month? Or do you always put $5,200 in, and cut back on… food?

It’s sort of like a slush fund, I guess. My husband and I have an agreement that, as long as we’re meeting our savings goals, we can do whatever with the rest of our money. Because we keep finances separate, in my case that means $1,200/month goes to taxable investments, plus I max out my 401(k) and IRA. And I’m doing all those things, but I still had money in my checking account.

It’s strange because, even though that money is there and I can technically do whatever I want with it, our daily lives have become so frugal that it feels like blasphemy to spend it on frivolous stuff. I mean, I COULD just invest more, and get to retirement that much sooner. And maybe next year my savings goals will become more aggressive, leaving less leeway. But I’ve also figured out that I’m more successful at sticking with the early retirement program if I don’t make it super-duper restrictive.

How much do you think you improved your situation by getting new jobs/raises, vs. slowed down your retirement plan by buying a $504 bag? I say this a lot on The Billfold: earning more has a greater effect than cutting back!

So true. Of course the raises were huge, and the bag is a one-time thing that is definitely not a make-or-break expenditure. I can’t remember where I read it, but there’s a quote I like a lot about how you can have ANYthing you want, but not EVERYthing you want. I have no regrets about spending $1,400 on my upcoming trip, or $504 on this bag. But I also can’t get into the habit of saying “yes” to myself on every single want. If I did that every month, or even every other month, I definitely wouldn’t be able to meet my savings goals. So there’s a balance in there somewhere that I’m still figuring out.

As we all are, no doubt.

Last question then: What advice do you have for Billfold readers?

Automate, automate, automate. Automate your 401k contributions from your paycheck, and automate your IRA contributions and taxable investments from your checking account. Not ever “seeing” that money really can shift your perspective and teach you to live on less.

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