“Everyone has a plan until they get hit in the face” – Mike Tyson
The idea that a 25-year old is thinking about retirement strikes some people as ridiculous. My co-workers laughed at me when I enquired about how our defined benefit pension plan was structured for early retirement. They thought I was absurd for thinking about, “That stuff – you’re way too young to worry about that!”
Related: Why should you value your retirement accounts?
I understand that trying to come up with a precise retirement plan for a young person (or really two young people when you consider Mrs. TM and I as a unit) is a little more art than science because of so many variables in the picture. I might be the only person in the history of personal finance to use a Mike Tyson quote to illustrate a point, but like Mike says, reality has a way of getting in the way of a nice and tidy plan.
It Looks Good On Paper Anyway
That being said, I think it’s a good idea to at least have some kind of preliminary plan when it comes to how we see our financial future. Even if it doesn’t work out quite the way I put it down on paper here, it should still give us a nice blueprint for success that we can come back to as life happens. So without further ado, here is our plan to reach our financial independence (no longer having to work) or Findependence Day (shout out to Jonathon Chevreau) much faster than most would think possible.
Related: Book Review: Findependence Day
The Past and Present
Those of you that are long-time readers of Young and Thrifty will likely recall most of my financial circumstances (I’ve been pretty public with most of this stuff). Just to give a quick update of Mrs. TM and I’s situation:
- We’re both 25 years old (stupid quarter century…)
- Mrs. TM is finishing her education degree this year. She can expect to gross around 53K next year as a first-year teacher (living in rural MB makes the probability of her finding work a lot higher than her fellow graduates who want to live in urban settings).
- Mrs. TM will graduate with around 30K of federal and provincial student loans, but will have no other debt.
- I am entering my fourth year of teaching and will earn about 75K or so in the next year in combined teaching salary and freelance writing income.
- Together we own a house that is worth about 130K, with an $80,000 mortgage.
- We also own two vehicles, with no plans to upgrade either one for at least 3-4 years.
- I currently have a pretty modest investment portfolio that is basically not even worth factoring into current calculations (below 10K) and Mrs. TM has no investments at this time.
Now that you have a rough snapshot of our current financial picture, we’ll venture into some less concrete territory. Most people would have a difficult time predicting their future income levels for a variety of reasons. Teaching however, is one of the most stable professions out there, and consequently, we can forecast with a decent degree of certainty. In order to keep numbers conservative, I decided not to assume I’d ever jump into administration or curriculum development (decent promotions that I’ll likely consider in a few years) and just ran the calculations based on teacher salaries for Mrs. TM and me (my salary numbers will be slightly higher due to my M. Ed., which I’ll be wrapping up over the next two years). I also don’t know how long I’ll want to do a lot of freelance writing, so I didn’t include that income out beyond the next couple of years.
In order for the numbers to make any sort of sense in the modern context I’ll keep all numbers in 2013 dollars. What that means is that the current top of the salary grid for a teacher in my school division with a master’s degree is $87,000. I think there is a very high probability that teacher’s pay raises will at least keep pace with inflation throughout my career (public sector unions), so I’ll use that number as my top end salary (and $82,000 for Mrs. TM).
For the next few years my salary will climb until it maxes out at 32 years of age. Mrs. TM won’t hit her maximum until 35 because she got a little bit of a later jump on school than I did. This means that for the next 10 years our combined gross income will gradually climb from 135K at age 26, to around 175K when we’re 36. Now, we’ll see a lower take-home cheque than many people because of the substantial deductions teachers have for our pension plans, insurance agreements, and disability protection (hence the current meagre state of affairs as far as my investment portfolio is concerned). Our combined net incomes will likely total around 80K in the next couple years, and then 110K or so when we’re 36 (again, all measured in 2013 dollars).
Stay tuned for the next episode in a couple days. Same bad time, same bad channel…