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28yr old retiring
Old 11-05-2008, 12:53 AM   #1
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28yr old retiring

... in about 15 years.

I often visit Yahoo Finance and came across the amazing article by Laura Rowley, expert columnist of Money & Happiness, on the 29 year old retiree Madison DuPaix. This article now seems to be mysteriously absent from Yahoo Finance, but when I read it a few days ago, I wondered how did she do it? What did she do differently than me because we're pretty close to the same age? I visited her website and had a couple questions as I'm a numbers person and the numbers weren't adding up for me. I even emailed her, but I think she's too busy responding to posts on this forum. I saw she generated quite a healthy discussion here. Nevertheless her website recommended this forum, and I think this forum is absolutely great.

This forum really seems to bring together lots of information and perspectives and filters out the BS. I, and probably everyone here, have read quite a few "finance" books that really seem to push get-rich-quick schemes on what's hot, whether its tech stocks, real estate, pyramid schemes... without talking too much about the risks. The only book I've read that seems to make sense to me is a Millionaire Next Door style early retirement, and this forum really seems to encourage that lifestyle.

A little about me... finished paying off all my debt this year which I'm thrilled about, except for one type of debt which I just took on this year, the mortgage! Glad to be owning (with my long-time girlfriend) and not renting, and I'm throwing in some extra each month to pay that thing off early. Work is ok, has its good moments, but would rather be enjoying life and perhaps doing something more meaningful. Flexibility and independence sound great. According to my spreadsheet, I have about 15 years to go. My assumptions may need some adjusting after this market but I figure I'm buying cheap so it'll all work out over the years. I see my parents struggling and wishing they could retire, and I'd like to ensure I enjoy a better fate. Just tonight I think I figured out the lingo so that I can say my plan is LBYM so that I can FIRE... and I'll look forward to learning and sharing on this forum.

I've seen a lot of specific questions on this forum about particular topics like investments or expenses, but would like to ask the big question of how do people do it? Outside of the general rule of LBYM, are there examples and case studies out there of people who are willing to share their stories (in perhaps a little more detail than Madison DuPaix) so I can learn from their success?
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Old 11-05-2008, 02:42 AM   #2
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Hey, welcome to the forum. I also try to learn from others who have been successful, and also find it frustrating when the information is really vague.

You seem to already have at least some of the basics of the big picture down. One good starting point I liked was to determine what you sort of % you want to set for your needs, wants, and savings for each year. By doing this, you will be able to get a basic road-map of what you intend to do, from which you can further build. Get an understanding of what falls within a need, a want, and savings.

Then there a large number of things you can do afterward:

-set an investment plan for the % you intend to go to savings (there are a lot of subquestions to this, such as finding out your ability to take risk and your need to take risk

-determine the amount you will need each year during retirement (this will help you refine your savings %, the lower it is, the sooner you will reach FIRE, however, make sure you are not planning on living expenses being lower than they were while you work. Another big thing to keep in mind about FIRE as well, you will no longer need to be saving your income, your income from your investments will be purely for your expenses)

-account for how you will pay for private health insurance (will you be done with your mortgage payments or will you have some other income source to handle this?)

-refine your spending habits, including learning about buying used goods, reselling goods, what goods should be bought new or near new (this takes a lot of work, but it pays off)

-work on ways to improve your income, since you will have enough growth year still to see it really pay off (after you get your savings under control, and setup a reasonable allocation, your income is pretty much going to be the biggest deciding factor on when you reach FIRE, developing this will likely take up the majority of your time)

etc...
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Old 11-05-2008, 07:14 AM   #3
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Plex has given you some great advice, Dreamweaver. The important thing, that you have already done, is identified your goals clearly, and chosen a partner that wants the same goal as you!
The "old-timers" around here will tell you that having a partner that is on board is one of the most critical parts of the puzzle. Stick around here for encouragement, ideas, and camaraderie as you shun most of what consumer society has on offer.
Many, like me, save 30-50% of their incomes each month for investing. Many, like me, have paid for homes at young ages. Most focus on eliminating or reducing regular monthly recurring expenses so they can save more.
Welcome--you are on the right path!
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Old 11-05-2008, 08:19 AM   #4
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Hi Dreamweaver... this would be my suggestion to you....

#1. Invest as much as you can into your 401k plan at work. Or at the very least if they match.... up to that limit. If not you are throwing away free money.

#2. Max out you ROTH IRA contribution every year. I like to plan it out in such a way that right around the time I am getting my tax refund, it goes right into my Roth for the year. Technically getting a tax refund is not the most efficient way to do it. But it is hard for everyone (including me) to come up with 5k all at once, so that tax refund helps me do it.

3. You WILL need to take some risk in your investing. This means it will be geared a bit higher towards stocks than bonds. However in light of the current situation (stock market down so far) you time horizon is far enough away that you should do fine. Remember it IS possible to conserve yourself right into the poor house. If you just save in bonds and a checking account making .2% inflation will destroy all of your gains.

4. Consider using ING or HSBC bank accounts for your liquid assets (savings account). They are online (no brick and mortar locations), but the upside is you get upwards of 3% interest a year and they are FDIC insured. The catch is you need a couple of business days before your can get that money transferred to a regular bank account. As long as you have enough cash to tide you over for a few days... it should not matter.
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Old 11-05-2008, 11:50 AM   #5
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Hello Dreamweaver,

welcome to the board. How do people do it? Well, we all have our own individual path to FIRE. For some of us it involves work grind and saving a chunk of each and very paycheck. For others it may involve an inheritance, stock options, a successful business venture, buying real estate in the right location, or grinding at a job with excellent retirement benefits (pension, healthcare, etc...). There is no right or wrong way. But most of us do share certain values, like LBYM.


Here are a few things I have been doing myself:
1) Maximize income, minimize expenses. Despite an income that would put us in the top 5% of households in America, we are always looking at ways to lower our expenses (that includes taxes). Target the superfluous and cut, cut, cut. If it doesn't do anything to improve your life, be ruthless. The less you spend on bank fees for example, the more money you have left to save or spend on stuff you enjoy...
2) Know thyself. Track your expenses. I track everything, to the cent. I know what I spend my money on. It makes financial planning a lot easier. And it helps target expenses that can be eliminated.
3) Consumption smoothing. There are 2 things I am not interested in: 1) save like crazy and pinch every pennies now so that I can live like a king when I retire. I want to enjoy my life today AND tomorrow. And 2) I don't want to downgrade my lifestyle in retirement either (so many retirees I know had to, and they all say it's no fun). In other words, find today a (reasonable) lifestyle that makes you happy and plan to continue that lifestyle, pretty much unchanged, throughout the rest of your life, whether you are still working or retired.
4) You shall not spend that raise. If you are lucky and your income increases faster than inflation, don't upgrade your lifestyle accordingly (see above). Instead, save the extra money. If you were happy with your life before the raise, why change anything? Plus your savings rate will improve dramatically year after year.
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Old 11-05-2008, 01:38 PM   #6
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Regarding the LBYM lifestyle, have you read books by Andrew Tobias, Jeff Yeager ("The Ultimate Cheapskate"), and Bob Clyatt ("Work Less, Live More")? I like the style of all three authors. The latter two are also members of this forum.
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Old 11-08-2008, 10:01 AM   #7
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There used to be lots of "how I did it" posts here years ago. Look for some of the old-time posters, and look up their first posts from five or six years ago.

My summary is that there are five paths:

1. Windfall (options, inheritance, early retirement offer, etc)
2. Get a job with a good early pension
3. Get fed up one day and radically reduce your lifestyle to retire with a modest savings
4. Save religiously for years.
5. Combine some elements of 1-4, but don't save enough to fully retire. Fill out your spending with a back-up source of income such as a spouse or part-time job.

In all cases you need to have a modest lifestyle relative to your income, and be financially prudent in other ways.

Most of the young dreamers here seem to be trying path #4, but in the polls that we did in the past is was surprisingly less common than the other paths. I don't want to discourage you, but warn you that, for reasons that I still don't understand, it is much more difficult than it seems.

Good luck.
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Old 11-08-2008, 10:51 AM   #8
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As mentioned by the previous posters, there really is no magic solution for ER. Bongo2 has it nailed downed. The easiest method is number #2 other than an inheritance. A savings program with those stocks that provide for a hopefully ever increasing dividend program is another long term option. For myself I will be FIRE in about 18 months at 50, mainly because of a very good pension and the bonus will be my savings and debt free.
Best wishes.
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Bongo2 got it right
Old 11-08-2008, 12:31 PM   #9
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Bongo2 got it right

...
4. Save religiously for years.
...
I don't want to discourage you, but warn you that, for reasons that I still don't understand, it is much more difficult than it seems.

...

It's not hard for me to understand - most folks who work for a living can save only a fraction of what they bring in (let's say they are good savers and save 10% of their salary.) Because of inflation and anticipated poor stock returns, they will be lucky to break even in investing over the next 10 years. That means in 10 years you have saved for ~1.1 years of expenses (assuming your expenses are 0.9 of your salary.) A "safe withdrawal rate" of 4% means you would be making effectively 0.04x your salary over the last 10 years. Who can live on that?

So, that may be too pessimistic - what if you are a wise and lucky investor and get 5%/yr return after taxes and inflation? That would give you an extra ~30% above that number (i.e 1.3x your annual salary saved over 10 years) - not exactly payola.

BTW, my returns over the past 10 years are essentially negative in real terms at the moment.

You have to radically LBYM for years for this to work (and be lucky in that you always have a job and don't get sick over a very long period of time.)
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Old 11-10-2008, 06:03 PM   #10
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Actually the key to #4 (saving) is to also have a good income, otherwise you almost have to combine it with #3, that is the missing element. Getting into a situation where you have a good income is the HARD part, saving is simply a mindset, some people are able to develop a savers mindset early in childhood. Sort of the elephant in the room in terms of saving though, is the income from which to save.

After looking at the introductory posts for a bit, I have noticed the vast majority of the mid 40's or sooner retirees not only had a savers mindset, but also really good incomes. From other statistics I have read, the vast majority of people who have the means to retire extremely early do not do it with 1 or 2 at all. This still makes sense for the poll, since the majority of early retirees are much more likely to retire closer to normal retirement age.

Getting into a position where you can earn a high income is hard, regardless of the path you take, it requires that at some point in your life, you put in really back-breaking (or mind-breaking) hours, mental energy and careful planning (regardless of what you do, it does not have to involve secondary education).
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Old 11-10-2008, 06:15 PM   #11
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No kids helps a whole bunch - kids are - so i hear - very expensive. 'Course you miss out on a whole bunch - watching the Obama family tugs pretty hard on my heartstrings, but one deals with things the way they are.

Having a partner who pulls in the same direction is critical - single may work as well, but 1 + x > 1 if x is not negative.
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Old 11-10-2008, 09:02 PM   #12
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What worked for me is the "Rule of Ones" that I probably read at one time, but don't remember where:

One Wife
One Kid
One Car
One House
One Job (with that early pension)

We moved around a lot over my career, but managed to keep to those limits and live below our means. Divorces, multiple cars, constantly shifting jobs, all these put a hurt on your finances and will delay your retirement.
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Old 11-11-2008, 09:12 AM   #13
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I agree that there are many paths to ER but LBYM applies to all.

All of those paths are not likely open to you & you can't copy exactly the path somebody else has taken. You have to invent your own.



My plan to retire at 49 next year has been:
  • 25 years in a very good paying federal job with COLA'd govt pension, guaranteed early out option, & health insurance into retirement at same cost
  • Save 15% of income for past 20 years via payroll deduction - mostly in S&P500 index fund until last year when moved 100% into Treasuries fund (genius market timing, or dumb luck? - you tell me)
  • Always had one older car & one newer car - only borrowed for a car once in 20 years.
  • We use credit cards as a convenience, but always, always, always have paid them off every month no matter how much it hurt
  • Moved four times but always had 15 year fixed loans. Didn't always make big money when sold our houses, but never lost. Have a couple more years to pay on current home, may sell it (too much house for us) or depending on the real estate market and a few other things we may stay a while longer & DW will work for the mortgage till paid off
  • While I don't consider us to be "cheap" - I do think we have always followed a lifestyle of "all things in moderation" - eat out 3 or 4 times a month - take nice but modest vacations - bought a used boat instead of a new boat - if I can fix or remodel it myself, I do - have nice but modest furniture - always waited at least a year or more to buy the new, latest, greatest technology till the price came down - when I bought a big screen TV I bought the cheapest one & sacrificed a little bit on picture quality - etc We splurge once in a while, take vacations, & have a nice life but when we do we "splurge modestly" -
  • Only had one child, but I don't think having a second would have impacted ER plans much, we might have set-aside college saving plan in that case - three kids would definitely have me working 10 years longer - mostly due to college costs - a special-needs child with expensive needs may have impacted ER a lot
  • Finally, I have faith SS will be there when we are eligible, but if it's not for some reason we'll be OK
We've been fortunate, but I'm also cognizant that you make at least some of your own luck (and bad luck) over the years.
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Old 11-17-2008, 04:02 PM   #14
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Quote:
Originally Posted by Texarkandy View Post
I agree that there are many paths to ER but LBYM applies to all.
This is the #1 rule. If you spend more than you earn, you can't save anything, and you actually end up spending even more servicing that debt.

Quote:
Originally Posted by Texarkandy View Post
Only had one child, but I don't think having a second would have impacted ER plans much
Again, I agree. We found that it was the first kid that made the biggest financial impact in terms of housing, cars, and loss of income. (I decided to quit my job and stay home). The second one is costing us extra only for the extra doctor's visits, a new carseat and the food she eats (since we cloth diaper and use hand-me-down clothes it's pretty cheap). We are saving for their college educations but do not intend to pay their way through college. We will offer support, but not at the expense of our retirement.

Our path so far looks like this:
1. LBYM as far as we can.
2. Minimize debt.
3. Save 30-50% of our take-home pay.
4. Invest in a disciplined manner according to our written investment plan (which has our target asset allocation, rebalancing method and philosophy)
5. Track our progress.
6. Give generously
7. Stay the course.

Good luck!
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Old 11-28-2008, 11:01 PM   #15
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Quote:
Originally Posted by plex View Post
Actually the key to #4 (saving) is to also have a good income, otherwise you almost have to combine it with #3, that is the missing element. Getting into a situation where you have a good income is the HARD part, saving is simply a mindset, some people are able to develop a savers mindset early in childhood. Sort of the elephant in the room in terms of saving though, is the income from which to save.

After looking at the introductory posts for a bit, I have noticed the vast majority of the mid 40's or sooner retirees not only had a savers mindset, but also really good incomes. From other statistics I have read, the vast majority of people who have the means to retire extremely early do not do it with 1 or 2 at all. This still makes sense for the poll, since the majority of early retirees are much more likely to retire closer to normal retirement age.

Getting into a position where you can earn a high income is hard, regardless of the path you take, it requires that at some point in your life, you put in really back-breaking (or mind-breaking) hours, mental energy and careful planning (regardless of what you do, it does not have to involve secondary education).
I think #4 is also related to reducing taxes.
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