Saving for retirement

Posted on February 21, 2021August 7, 2026 by Laid Back Investor

The first step to saving for retirement is to understand what retirement really means. It’s no longer just an age, it’s the time when you have enough income from other sources besides work to be able to support you and your family.

If you haven’t already, create a detailed budget to know what your monthly and annual expenses are. The main categories to budget for are: housing, health care, transportation, any schooling expenses, monthly recurring expenses, annual expenses, your monthly disposable expenses (food, shopping, etc), and any traveling expenses. Many people and investment sites then recommend that you reduce this amount a bit to account for less taxes and other expenses in retirement. A common multiplier used is 85%. I personally don’t reduce the amount as I’d rather aim high just in case.

Once you have your annual expense number that you need to replace, simply multiply it by 25 to get your magic retirement number. Why 25 you ask? Because that follows the 4% safe withdrawal rate rule of thumb. There was an extensive study (called the Trinity Study) that ran a ton of scenarios over the entire time of the stock market to determine the safest withdrawal rate. “Safe” is defined as the amount you can withdrawal every year and your money is virtually guaranteed to last 30 years. This includes retiring right before the Great Depression and other similar stock market shocks. It’s a hotly debated number in the investment community. One of the authors themselves recently came out and said he actually withdrawals confidently at 5% (so you could use a multiplier of 20). People aiming to retire early will definitely want their money to last longer than 30 years, so you may want to withdrawal at 3.5% for your money to last 50 years (28.57 multiplier), according to a recent analysis. I personally still use 4% as my target.

Now that you know your expenses and your target retirement total, let’s look more specifically at your different types of retirement income and their pros and cons.

Tax-advantaged accounts are primarily your 401k and any IRA accounts that you have. You should try to max out your contributions for both of these if possible. The downside to be aware of is that you will get heavily penalized if you withdraw any money before age 59.5, so if you plan on retiring early, you should plan on supporting yourself using different income stream(s) until you reach this age. Also note that once you hit age 72, you are required to begin withdrawing money from these accounts, so keep that in mind to reduce your withdraws from other types of accounts.
Brokerage accounts (or other types of private investments) are yours to do whatever you want with, so these will likely be your main source of income if you retire early. A big advantage to buying stocks with your brokerage account is that you can focus on ones that pay a dividend. Dividends are money that can go directly to you without having to sell any shares. You typically reinvest these into additional stocks while you’re still working, but you can change that once you retire.
Real estate investments are a great source for passive income. Any net income you have after expenses can directly come off of what you need to withdraw from your other investment accounts. As the mortgages are paid off over time, you’ll get a jolt of new passive income without any additional work too.
Social security is the biggest unknown to me. It should be something I can lean on to reduce other savings goals significantly, but it’s become such a political hot potato in recent years that I’m afraid to include it in my retirement planning. If it’s still around and paying well, the only downside to my planning is that I’ll have extra money, which seems safer than trying to rely on it. Note that you can’t get social security before age 62, so if you’re planning to retire early you can’t count on it at first, and also be aware that your payments will be lower since you’re contributing less than if you retired later. If you start collecting social security between ages 62 and 67, you’ll get a reduced payment because you haven’t reached “full retirement age”. Lastly, if you are able to delay collecting social security until age 70, you’ll get additional money in your monthly payments for life.

In summary, here’s what I did/do:

Created a separate area of my budgeting spreadsheet to estimate what my family’s total annual expenses will be in retirement.
Next to that, I list out the total annual net income from our investment properties and subtract this from the annual expenses.
Then I look at other investment draw down in two ways:
- First, I take our total current investment balances (combining tax-advantaged with all others) and multiply by 4% to see how much potential income we could have if we retired today.
- Second, I project out each year’s total balances using our current savings rate and estimated market returns (~7%), and I do this for as many years as it takes to hit the magic retirement number.
Then when I update my monthly budget, I’ll update the current balances, see if things are getting better or worse, and then play with all the numbers to daydream different early retirement scenarios.

Benefits of real estate investing

Posted on February 14, 2021August 7, 2026 by Laid Back Investor

Once you’ve simplified your investments and you’re contributing to all of your tax-advantaged accounts, it’s time to start looking at other types of asset classes to diversify your investments. My personal favorite is investing in real estate. There are lots of ways to invest in real estate, such as fixing and flipping, purchasing notes (basically becoming the bank and receiving payments), buying into a private syndication (a mid-size company that handles buying, selling, and managing properties), purchasing REITs (Real Estate Investment Trusts — kind of like syndications on a larger scale, and you can buy and sell like stocks), and buying and holding individual houses.

After about 18 months of doing research, reading forums, listening to podcasts, and reading books, I decided that I wanted to buy and hold single family homes. There are many benefits to this strategy, and I’ll go into the big ones below.

Passive income — this was the main reason I first got interested in real estate. After subtracting expenses and additional budget savings, the leftover rent goes directly into your pocket (called cash flow). With enough rentals, you can eventually replace some, most, or all of your income to accelerate your path to a more comfortable retirement.
Leverage — Another word for using other people’s money, or in the context of real estate, getting a mortgage. Would you rather buy a single house for $100,000 or five houses, each with $20,000 down payments? While you have to be sure you’re not over-extending your finances (called being over-leveraged), the returns are always better when you’re using leverage.
Mortgage pay down — Also known as “tenants paying your mortgage.” Assuming your property has cash flow, the tenants will be fully paying your mortgage for you. Of course there are times when the rent isn’t coming in, but that’s one of the things you budget for in the good times. Eventually the mortgage is paid off and your cash flow can easily double or more!
Appreciation — This is the value of the house gradually increasing over time. While not as guaranteed as it was before 2008, over the long-run, the value usually at least meets or beats inflation. Some areas have less appreciation but more cash flow if that’s more important to you.
Tax deductions — I don’t know the specifics here as my CPA handles the details, but there are benefits to property ownership that you can take advantage of.
Control — This is the main reason I decided to do buy and hold for single family houses over the other real estate strategies. I can control every single thing about each property, understand the trade-offs, and have full say over what happens. For example, I could raise the rent to increase my cash flow, I could patch a roof instead of doing a full replacement, I could add a bathroom to increase the equity and rent, and when I’m ready to sell, I can list the home on the normal MLS to sell to an individual (vs multi-family that generally sell to other investors also trying to make a buck).

Simplify your investments

Posted on February 8, 2021August 7, 2026 by Laid Back Investor

I’ve tried out a ton of different apps or tools to manage my investments, from change round-ups to bank monitoring services, from individual stock investing to various fund investments, and the biggest lesson I’ve learned is to keep everything SIMPLE, for ease of maintenance and to keep your own sanity.

I’ve devised this ladder of how I handle my money. Nothing Earth-shattering here, but I think it’s important to start with this for the investing category.

First and foremost, you must contribute to your company’s 401k program to at least the percentage that is matched by your employer. That matching is free money and a great multiplier on your own investments. For example, if their match is up to 3% and you contribute that 3%, you are getting an automatic 100% return on your investment right away, which you will not get anywhere else.
Next, you’ll want to ensure you have around 3-6 month’s worth of expenses in an emergency fund of either cash or less-risky investments that you can sell quickly if needed. A wise uncle once told me that with a proper cash cushion you’ll be more comfortable taking risks at work which can help catapult your career.
Once you have those two basics done, next you should prioritize paying off all credit card debt that has an interest rate higher than 5%. Reason being is that you’re not guaranteed more returns than that (or anything really) in any other investing options. In other words, if you do steps 4-6 before this one, you’ll be earning less than you’re paying in credit card interest, so you’re actually losing money overall.
With no looming debt over your head, now’s the time to take the money you were paying towards credit cards and increase your 401k contribution by 1-3%. You could start with 1% more, see if you’re able to survive easily, and if so, keep upping the percentage until it starts to feel a little uncomfortable.
Once you’re at a good place with your 401k, or potentially even maxing it out ($19,500 per year as of this writing), the next investment you should consider is contributing to an IRA. There are two types, a Roth IRA and a Traditional IRA. A Roth IRA is better because the earnings grow tax-free while a Traditional IRA grows tax-deferred, meaning you pay regular income taxes at your future retirement tax rate. There are some eligibility requirements for contributing to a Roth IRA, so check those to decide which one is right for you. With either type of IRA, you can pocket up to an extra $6,000 per year and save on future taxes.
Lastly, once you’ve gotten this far, you can start looking into investing in stocks directly using a brokerage account. This used to be hard for the average person to do, but there are lots of companies that make this easy and cheap (or free!) these days. You can invest in individual stocks, index funds, or better yet (in my opinion), a robo-advisor, which I’ll cover in a future post. There is no cap to the amount of stocks you can buy, so as you get pay increases or bonuses throughout your career, you can continue up this investment ladder rather than falling prey to lifestyle inflation.