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A year in
Old 07-19-2013, 05:10 PM   #1
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A year in

Hi. Thanks to all for a great forum. My wife and I retired nearly a year ago in our early 40's after a decade or so of living well below our means. Our first year of retirement included a 2+ month camping and fishing trip, extended visits with our families, and getting settled in a new town with lots outdoor opportunities close by. Wow -- the year went by fast.

We have to pinch ourselves sometimes to believe we're retired, but took the leap and are glad (so far) we did. Life will never be without some challenges, but we haven't once wished we were back at work.
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Old 07-20-2013, 06:09 PM   #2
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Congratulations. Inquisitive minds would like to know how you did it? Yes, im sure living below your means had a lot to do with it.
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Old 07-21-2013, 08:27 AM   #3
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Did you have any "surprises"? Anything that caught you off-guard? Good or bad.
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Old 07-21-2013, 09:50 AM   #4
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Originally Posted by katwillny View Post
Congratulations. Inquisitive minds would like to know how you did it? Yes, im sure living below your means had a lot to do with it.
I'd say on a most basic level, we retired early because that was our priority once we got the FIRE bug maybe 10 years ago or so. Among the things we could control, a few concepts were key for us:

1. The less we spent, the more we saved and the less we needed to FI. We viewed this as a powerful form of compounding. We spent what we wanted to spend, but we just factored in the impact of an expenditure. The reverse is equally true (more spent = less saved and more needed to be FI) and would create a huge headwind.

2. Taxes - Capital is taxed much more favorably than wages, so we wanted to convert our earnings from wages to capital. In this sense, we thought of the income tax system as a consumption tax system because to the extent we spent (consumed) our wages, we would continue to face the less favorable tax treatment of wages (ordinary rates + employment taxes).

3. Low cost investing - At this point, the money we don't pay for average or high cost funds covers a substantial portion of our expenses. And sticking with our investment plan during '07-'09 was important.

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Did you have any "surprises"? Anything that caught you off-guard? Good or bad.
One thing that was a bit of a surprise was what we spent on our home. It's one thing to surf the internet and say "Hey those look like OK homes for about $x, so we'll assume that as our budget." It's quite another to actually go into some of those homes. Yikes! It wasn't long before we realized we were going to have to spend more. So, in hindsight, we might have actually looked inside some homes before coming up with a budget. We spent an extra $40k to pretty much gut the place, get a new roof and HVAC. Anyhow, we have some buffer (could manage well on a 2% withdraw) and we're happy, so we think it was an OK move.

On the good side, we've been pleasantly surprised how great retirement's been so far. We are feeling very fortunate.
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Awesome!
Old 07-21-2013, 10:06 AM   #5
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Awesome!

Great post Steelhead!

Congratulations on your accomplishment! Your post really helped put me in a good mood....am (was!) fighting the 2 more years to work blues, but your note chased it away!

Thanks, and Congrats!!
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congratulations!
Old 07-23-2013, 06:11 PM   #6
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congratulations!

So great to read your story. Yes, living below your means sure does make up for the things we can't control - like the stock market. It's just that a lot of folks don't see the benefit and only focus on what they are giving up. That was an upper. Thanks for posting!
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Old 07-23-2013, 08:02 PM   #7
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Congrats on the ER. Watching out for want and need will always put you on the right road. Keep a tight line.
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Old 07-23-2013, 08:26 PM   #8
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Thanks for the report - very inspiring.
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Old 07-23-2013, 10:48 PM   #9
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Congrats! Just curious, do you have any kids? If so, does your budget have them covered? How about health insurance?
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Old 07-24-2013, 08:55 AM   #10
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Congrats! Just curious, do you have any kids? If so, does your budget have them covered? How about health insurance?
Thanks FIREdWannaBe. We have no kids. We're on COBRA now and will get an exchange policy next year.
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Old 07-24-2013, 09:10 AM   #11
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CONGRATS! And thanks for your post. Continue to enjoy your new found freedom.
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Old 07-29-2013, 01:57 PM   #12
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Quote:
Originally Posted by steelhead View Post
I'd say on a most basic level, we retired early because that was our priority once we got the FIRE bug maybe 10 years ago or so. Among the things we could control, a few concepts were key for us:

1. The less we spent, the more we saved and the less we needed to FI. We viewed this as a powerful form of compounding. We spent what we wanted to spend, but we just factored in the impact of an expenditure. The reverse is equally true (more spent = less saved and more needed to be FI) and would create a huge headwind.

2. Taxes - Capital is taxed much more favorably than wages, so we wanted to convert our earnings from wages to capital. In this sense, we thought of the income tax system as a consumption tax system because to the extent we spent (consumed) our wages, we would continue to face the less favorable tax treatment of wages (ordinary rates + employment taxes).

3. Low cost investing - At this point, the money we don't pay for average or high cost funds covers a substantial portion of our expenses. And sticking with our investment plan during '07-'09 was important.
...........................
Most people have no understanding of those three points and have to keep working longer than they want because of it.
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Old 07-29-2013, 02:01 PM   #13
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Steelhead, can you please elaborate on the investing side of things?
What did you invest in to achieve ER, have you changed your investments since ER, and how did you manage the '08 - '09 crash, and what is your average RoR?

Thanks.
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Old 07-30-2013, 01:14 AM   #14
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Steelhead, can you please elaborate on the investing side of things?
What did you invest in to achieve ER, have you changed your investments since ER, and how did you manage the '08 - '09 crash, and what is your average RoR?

Thanks.
We've moved from 80 stock/20 bond pre-retirement to 60/40 as we neared retirement. We did little selling during the crash, though we did sell about $45k of "legacy" funds (LifeStrategy/Tax Managed Small Cap etc) which at the time made up about about 8% of our portfolio, for a $5k loss. The goal there was simplify our portfolio and get into lower cost funds. We used total stock and total bond market index funds mostly. Pretty much the same funds in retirement. Our portfolio expense ratio is under 10 basis points.

We kept our weekly automatic investments going throughout the 07-09 meltdown. I attribute that to feeling confident we had a solid investment plan without gimmicks, and believing that for us there really wasn't any better alternative to a simple low-cost indexed approach. I reminded myself often (and still do) that the greatest enemy of a good plan is the dream of a perfect plan.

Quicken tells me our average annual return was 7.61% from 8/12/2002 but good or bad, I doubt early on when the numbers were smaller I got all the transactions in Quicken. I'd guess that the figure would be somewhat suspect and I won't vouch for it.
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Old 08-01-2013, 11:48 AM   #15
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2. Taxes - Capital is taxed much more favorably than wages, so we wanted to convert our earnings from wages to capital. In this sense, we thought of the income tax system as a consumption tax system because to the extent we spent (consumed) our wages, we would continue to face the less favorable tax treatment of wages (ordinary rates + employment taxes).
What do you mean by 'capital' exactly and how do you convert wages to capital?
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Old 08-01-2013, 02:24 PM   #16
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What do you mean by 'capital' exactly and how do you convert wages to capital?
Hi dvalley. By capital, I mean investments. We converted wages to capital by investing a substantial portion of wages earned rather than spending them. After converting enough of those wages to investments (i.e. capital) those investments should generate the resources (dividends, capital gains or return of capital) needed to sustain our lifestyle. In essence, we substituted capital income for wage income to pay our expenses, with the tax treatment of the former being much more favorable. Plus, most importantly, we don't have to work anymore.

Of course this is what many here have done, so this isn't particularly novel. "Convert to capital" was just sort of a mantra we used for ourselves to help keep us on track. Hope this helps.
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Old 08-01-2013, 03:51 PM   #17
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Ah, ok - thanks for the info and congratulations!
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