Scenario time. Brian is a 35 year old IT professional. He wants to retire 20 years from this date, which would make him 55 years old. He has enough savings for a downpayment on a house and nothing else. His job pays him $60,000 a year and he would like to retire with $8,000 a month of income. Brian likes to grow bamboo on his personal time.
Refresher. Remember that we like to be diversified in our retirement planning. The 4 pillars of our Retirement 4-50 plan are Employment income (pensions, 401k, social security), Investment income (stocks, bonds), Rental income, and Business income. You can find out more about Retirement 4-50 (here). For this scenario, we will try to get Brian up to $2,000 a month from each of his retirement sources.
Employment income. Brian does not have access to a pension plan so he looks into a 401k. His employer has a 401k with 5% matching. Maxing out this plan would give him $240,000 after 20 years, which is not enough to retire. He decides to wait until age 66 before he draws this account down, which would put the account at $740,000. Using the 4% rule, we would draw $29,000 annually, or $2,466 a month. He will also draw his social security at this age for $2,000 a month. His total employment income would be $4,466, however, he would not have income at age 55, when we would like to retire. He would have to make it up somewhere else.
| Employment Source | Age 55 | Age 66 |
| 401k | $0 | $2,466 |
| Social Security | $0 | $2,000 |
| Total | $0 | $4,466 |
Rental Income. At age 35 Brian decides to buy a house. Looking at his Retirement 4-50 plan he knows he will have an income gap between age 55-66. He will need to pay off his house with a 15-year mortgage. He has two options: he can either buy a smaller house or he can buy a larger house that can generate income. He decides to buy a bigger home that can generate income (my favorite). He buys a 4 bedroom 3 bathroom home that has two masters. He rents out the two masters and this covers his mortgage. On top of this, his new house has an in-law detached home outside. He also rents this out for more profit. At age 50, Brian will pay off his house. He can stop having roommates, only keep the in-law suite rented, or any combination thereafter. For now, he will have no mortgage and keep all his roommates and in-law home residents. At age 66, he will remove the roommates but keep the in-law residents. He can always add roommates back for extra income, at his leisure.
| Rental Source | Age 55 | Age 66 |
| Roommates (x2) | $2,000 | $0 |
| In-Law Home | $1,700 | $2,200 |
| Total | $3,700 | $2,200 |
Investment Income. Brian was limited in the amount of money he could invest in his 401k. This means he has to double down on his personal brokerage account in order to retire early. He knows that he will not have 401k and Social Security income until age 66. He will have $3,700 in rental income, so he predicts that he will need $2,300 a month income from investments at age 55. Brian does not want to spend time picking individual dividend-paying stocks. He decides to build a simple portfolio of index funds, that he will drawdown using the 4% rule. Keeping things simple, Brian knows that if he invests $2,500 a month for 20 years, he will end up with $1.3 million. This will pay him $52,000 annually, or $4,333. Luckily having roommates and a business allows Brian to easily invest this money.
| Investment Income | Age 55 | Age 66 |
| Index Fund Portfolio | $4,333 | $6,667 |
Business Income. Brian has done well for himself. The roommates have really helped him save and invest his cash. However, he loves growing bamboo and he would like to monetize this. Brian bought a house on 2 acres of land, so he has the room to do it. His plan is to make $2,000 a month in income from his bamboo farm. At age 66, he wants to hire a manager to run his business. He will pay the manager 50% of the profits. With his investments, social security, 401k, and rentals, he will be fine. Also, if he decides he needs more cash, he can rent out a room or Airbnb it.
| Business Income | Age 55 | Age 66 |
| Bamboo Farm | $2,000 | $1,000 |
Putting it all together. As you can see, Brian is doing very well for himself. He never received a pay raise from his job, yet his income keeps rising. He can control his income via his own sources. This is the true power of wealth. Let’s take a look at where Brian is after he FULLY retires at age 55. Then we can look at some ways he can earn even more income if he needs to. He does not have to be on a fixed income.
| Income Source | Age 55 | Age 66 |
| Employment Income | $0 | $4,466 |
| Rental Income | $3,700 | $2,200 |
| Investment Income | $4,333 | $6,667 |
| Business Income | $2,000 | $1,000 |
| Total | $10,033 | $14,333 |
Final Thoughts. This was a very simple process. Nothing about this life was hard. Yes, dealing with roommates can be a pain, but look at the final numbers. He blew his predictions out of the water. He has so many ways to increase his income further. He can keep renting rooms, start a Youtube channel, or start a blog based on his bamboo farm. He can do one on one training for bamboo farmers. He can ask the manager to increase the profit of the farm. He also can start learning about investments and get a higher return on some of his stocks. He also had a lot of unaccounted-for money from his farm and the roommates. He probably had enough to buy another rental home nearby or drop a mobile home on his property for rentals. The list never ends. When you see money, your world is never limited. If any of this seems unreasonable, then you have to read more books and articles. You will start to see a path of wealth in front of your eyes. Books will connect the rungs of the ladder so that you can climb the ladder of wealth.
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https://www.pinterest.com/kingmarine/military-family-investing/Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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