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Under 40 and set for retirement

September 15, 2011

By Juliette Fairley | Money Rates Columnist

We know what we're supposed to do to prepare for retirement: Save consistently, invest smartly and let long-term returns build your nest egg. Rinse, lather and repeat, and hope to achieve your goal in time to enjoy some golden years.

But add in unexpected medical expenses, exploding college costs and housing repairs--that is, real life--and the lost decade of stock market returns, and hitting your target retirement goal by the traditional retirement age of 65 may seem about as realistic as a congressional kumbaya circle in an election year.

Given the challenge of achieving your retirement savings goals by 65, it's all the more impressive that some reach the mark before 40. How'd they do it?

The Investor

Savannah's Story

Savannah Ross was on the verge of bankruptcy when she became a real estate investor. After securing a bank loan in the amount of $450,000, the 32-year-old invested in three rental properties and used the equity in the buildings to buy an additional 54 buildings. A year later, Ross had earned $3 million. Retired and living off the income of her myriad properties, Ross is three years shy of 40.

"I needed to make money. It was an emotional decision. My intent wasn't to retire but rather to earn enough money to stay home with my son," says Ross, who is married.

A 401(k) plan played no role in Ross's retirement plan. Instead, Ross reinvests her earnings not in the stock market but back into real estate.

With rentals in Michigan, Arizona, Florida, Brazil and Canada, Ross owns 137 buildings, which a property manager handles on her behalf.

"People who choose to manage their own property fail as real estate investors because you end up doing the job of a lawyer and a Realtor and lose sight of being an investor," she says.

The Advice

MoneyRates.com asked personal finance expert Richard Barrington to assess the security of Ross's retirement for the long term.

Barrington commends Ross for having a vision to gain financial freedom at an early age.

"It's a good starting point to be focused on a long-term financial goal," Barrington says. "You have to decide whether saving, earning and investing for retirement is a priority or whether consumption is more important."

However, Barrington thinks Ross's retirement income strategy can be dicey. He says Ross's real estate empire could be subject to an abrupt change, depending on how much debt remains on her buildings.

"If she's using rental income to make payments on loans she used to buy them, a decline in rental income can jeopardize her ability to meet her loan obligation," Barrington says. "It's a fundamentals thing."

The Earner

Todd's Story

Todd Tresidder has been saving 70 percent of his low- to middle- six-figure income since he entered the job market at the tender age of 23. By keeping his expenses low, paying down his home mortgage and working as a hedge fund manager, he has saved $1 million. At 35, Tresidder retired and invested his savings first in mutual funds and subsequently in exchange-traded funds. That was 15 years ago. Today, Tresidder is 50 and retired, and his investments are compounding at an average annual rate of 17 percent or higher.

"That $1 million has grown and exceeded what I've needed. As long as I invest it wisely, it will be enough for my dying days," Tresidder says.

Like real estate investor Ross, a 401(k) plan played no role in his planning. Tresidder's secret was having a vision for his retirement years.

"I was clear on my goal from day one and was excited to begin compounding my money from the first day I began working. What prompted me was a high value on freedom. I wanted to live a full life experience and not be encumbered by a job or financial limitations," Tresidder says.

The Advice

As for Tresidder's retirement portfolio, Barrington questions whether his investments will continue compounding at 17 percent.

"It can be a risky assumption, especially since the return is far above historical market returns," Barrington says. "When aiming for something at a great distance, any variance from your assumption can have a huge effect. "

Variances include inflation, the return earned on investments and how long an individual lives in retirement.

"No one knows the answer to these variances, but the more conservative your assumptions about these three realities, the more solid ground your retirement is on," Barrington says. "Todd's done a fantastic job of managing his investments, but the hardest part about retirement planning is the assumptions you make."

If you're feeling inspired

What if, like Ross and Tresidder, you're committed to financial independence and an early retirement?

  • Educate yourself. You can read more from 10 retirement experts on strategies to reach your target goals.
  • Run the numbers. Make use of online tools such as financial calculators to determine how much you need to save for retirement. As Barrington points out, many variables change, so game out different scenarios.
  • Prepare for plan B. Don't assume that your best-paid plans will pan out. If you are nearing retirement or have retired but find yourself with a smaller savings account than you'd hoped for, don't despair. Think about a second career, delaying retirement or stepping up your catch-up contributions.

Your responses to ‘Under 40 and set for retirement’

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guest

6 January 2012 at 10:06 am

I, too, worry for the real estate investor. If the lender she's working with gets nervous or folds, they may call in her notes all at once and could be in deep, deep trouble if she has any outstanding debts on those properties. Hopefully she's using some of her income to get the properties fully paid off fast.

Ed Mark

21 September 2011 at 3:08 pm

Nice to read a story about folks who prepared in advance and (with a little luck as well) are doing so well!

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