In the About Us section, I stated my goal was to retire by the age of 38 which would occur during the year 2020. I chose this age solely based on when I would be fully vested in my employer’s age-based retirement account (this is an additional contribution on top of their generous 401(k) match). We should reach financial independence well before that time, but the thought of throwing away free money is always tough to swallow.
So how much is my employer actually contributing to my retirement account and is that money worth a few extra years of lost freedom?
I began crunching numbers to estimate how much “free” money I would be losing based on retirement date. The values shown in the table below represent the lost employer contributions at the time I would begin withdrawing funds in the year 2042 (age 60) assuming a 7% annual return. This does not include any potential forgone salary, only lost employer contributions.
Clearly, it would be unwise to retire before September 2016. In doing so, I’d lose out on roughly 1/8 of a million dollars – quite a hefty sum. After that, it gets a bit tricky. Once I am fully vested in my employer’s 401(k) match, I would only be losing a percentage of their additional retirement contribution. This continues until September 2020, at which point I would have traded enough time to be fully qualified for all retirement benefits.
Compared to the anticipated value of our retirement and brokerage accounts, the lost employer contributions each year from September 2016 to August 2020 would represent less than 2.5% of our total investments. Additionally, assuming I continue part-time reserve military service for 10.5 more years and possibly longer, I would receive at least $2,300 a month in today’s dollars in reserve retirement pay beginning at age 60. Not to mention, if Mrs. DTG remains on active duty until she hits 20 years of service (this will be her choice), she’ll collect about $3,800 per month starting at age 42. Taking these factors into account, any lost employer contributions after September 2016, from my viewpoint, become fairly negligible. Cash flow at age 60 and beyond should not be an issue at all.
To add one more wrinkle, my employer usually gives out annual bonuses during the first quarter of each year. Since my pre-tax bonus would be approximately $15,000, and potentially much more, it would make financial sense to wait until after bonus time to retire. There’s no reason to leave in September when a decent lump sum is right around the corner.
Circling back to the initial point of this post, it would seem that any time after March 2017 is fair game to ditch the daily grind and begin the next phase of our lives. Leading up to this date, we’ll continuously reevaluate the situation. If I’m enjoying my job, I could keep working full-time or even drop down to part-time. If not, I could leave steady employment to begin working side projects I’ve been contemplating for years, read books I’ve been putting off, exercise more, improve my Spanish skills, and follow any other desires I can’t currently cram into my evenings and weekends. Besides, my birthday is in April. What could be a better 35th birthday present?