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The 10 year plan
Old 09-18-2011, 10:29 PM   #1
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The 10 year plan

Hi there. My wife and I are in our mid-30s (36 and 35) with a 9 year old son. We've recently come to the realization that it's time to switch gears from a focus on seeking satisfaction through career challenges, etc to a focus on "where's the exit door to this rat race?"

It's been a long journey so far of getting the right education, getting good jobs, building career growth velocity, etc. We've worked hard, and we feel very fortunate to be where we are right now. The only problem is we're getting a little nauseous from the merry-go-around and I'm beginning to suspect that the brass ring we keep reaching for is just a cheap piece of plastic.

A few months ago, we sat down and tried to figure out the exit strategy. We decided to shoot for 10 years as a target goal. Working it out on a spreadsheet, it's plausible, although perhaps a bit optimistic, that we could have between 3 and 4 million in liquid assets in 10 years. From my current perspective, the biggest risk to the plan is that a non-trivial part of that calculation involves some hard-to-predict bonus and promotion compensation, but I'm allowing myself the luxury of thinking that things will continue to go well for us.

I also think there's quite a bit of wiggle-room in these estimates that we can adjust to accordingly. We don't live super-frugal lifestyles, so there's always room to improve there. Also, if we end up coming up short on our savings goal, we'd be willing to switch to some part time work and/or move to a less expensive location for a few years before full-on retirement.

I've always been a driven, goal-oriented person, and I find our new plan very invigorating. However, one downside to the plan that I've noticed is it's taken a lot of the steam out of the drive I've had in the past at w*rk. Having an exact end date in mind has a tendency to make the next 10 years seem like a jail sentence, as opposed to what it really is- an important chunk of my life that I don't want to miss out on, not to mention a once-in-a-lifetime opportunity to make the most out of raising my son.

I'm looking forward to the challenge of both keeping my eye on the prize, as well as stopping to smell the roses.
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Old 09-19-2011, 12:14 AM   #2
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Hello 2021: Your post speaks volumes about your maturity and intelligence. Therefore, with much hesitation, I venture to give you my thoughts, as I think you are fully capable of handling your future plans yourself.

I would suggest the following:
1. Do not pay any attention to other's people's expectations about what you or your wife should achieve in life.
2. Shoot for a 5 year plan. 10 years will feel like a jail sentence, whereas five years is a count-down. In fact, five years will go by so fast that you will actually find yourself rushed to get all the things that need to be done in that short time frame.
3. If necessary, depending on your business or trade, you might want to go super part-time in 5 years. What that means is that essentially, you will make all the investible money by then (say $1-2 million dollars, plus a paid off house and all other toys your might want fully paid off), and then you put that money away, and never touch it. After five years, you will work (not necessarily at your current position), NO MORE THAN what your monthly expenses are. It might be the case that you only need to work 1 day a week or 4 days a month to make what you need to live on. (I have reduced me work now to about 10 hrs a week, and am quite happy with it).
4. Pay off your house. Pay off your cars. Pay off all things that normally are bought on payments. This is very important. Pay off all your loans. All of them.
4. Beware of the danger in thinking about your "opportunity cost" associated with ER or with going part-time. The opportunity cost is definitely there when you FIRE. So, how do you give up on making good money at age 43, or 45 or 47? Basically, you have to value your time more than the opportunity cost? Remind yourself that life is short and there is no replay or rewind button in life. Life is a one time show, so better enjoy it as it happens.
5. Whatever full-time "work" you do, do it well and enjoy it.... because you are only going to do it for another 1825 days (including holidays, weekends, sick days, etc etc.) That's really not a lot of time, when you think about it.
6. Diversify and do not take too much risk with your principle.
7. You may find yourself constantly coming back to the question: "Do I have enough?". No one can give you an answer to that question. You just have to figure that out yourself.

Work hard, remain focused, save as much as possible in the next five years, and then be done with the rat race.

All the suggestions that I have written above were used by me over the last five years. By the way, we do not have anywhere close to the money you mentioned, but feel that we have more than enough for our game plan.
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Old 09-19-2011, 02:59 AM   #3
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Hello 2021Dream - I feel the same about having an exact end date in mind. It's nice to read others on this website feel the same. Congratulations, you seem to be on the right track though. Welcome to the boards.
Quote:
Originally Posted by 2021Dream View Post
Having an exact end date in mind has a tendency to make the next 10 years seem like a jail sentence, as opposed to what it really is- an important chunk of my life that I don't want to miss out on, not to mention a once-in-a-lifetime opportunity to make the most out of raising my son.
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Old 09-19-2011, 04:50 AM   #4
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Quote:
Originally Posted by SandsofTime
Hello 2021: Your post speaks volumes about your maturity and intelligence. Therefore, with much hesitation, I venture to give you my thoughts, as I think you are fully capable of handling your future plans yourself.

I would suggest the following:
1. Do not pay any attention to other's people's expectations about what you or your wife should achieve in life.
2. Shoot for a 5 year plan. 10 years will feel like a jail sentence, whereas five years is a count-down. In fact, five years will go by so fast that you will actually find yourself rushed to get all the things that need to be done in that short time frame.
3. If necessary, depending on your business or trade, you might want to go super part-time in 5 years. What that means is that essentially, you will make all the investible money by then (say $1-2 million dollars, plus a paid off house and all other toys your might want fully paid off), and then you put that money away, and never touch it. After five years, you will work (not necessarily at your current position), NO MORE THAN what your monthly expenses are. It might be the case that you only need to work 1 day a week or 4 days a month to make what you need to live on. (I have reduced me work now to about 10 hrs a week, and am quite happy with it).
4. Pay off your house. Pay off your cars. Pay off all things that normally are bought on payments. This is very important. Pay off all your loans. All of them.
4. Beware of the danger in thinking about your "opportunity cost" associated with ER or with going part-time. The opportunity cost is definitely there when you FIRE. So, how do you give up on making good money at age 43, or 45 or 47? Basically, you have to value your time more than the opportunity cost? Remind yourself that life is short and there is no replay or rewind button in life. Life is a one time show, so better enjoy it as it happens.
5. Whatever full-time "work" you do, do it well and enjoy it.... because you are only going to do it for another 1825 days (including holidays, weekends, sick days, etc etc.) That's really not a lot of time, when you think about it.
6. Diversify and do not take too much risk with your principle.
7. You may find yourself constantly coming back to the question: "Do I have enough?". No one can give you an answer to that question. You just have to figure that out yourself.

Work hard, remain focused, save as much as possible in the next five years, and then be done with the rat race.

All the suggestions that I have written above were used by me over the last five years. By the way, we do not have anywhere close to the money you mentioned, but feel that we have more than enough for our game plan.
2021:

Listen to what "Sands" is saying - this guy gets it!

One thing I'd add is to consider a little more emphasis on your budget. With such a short timeline to FIRE, this is critical. And, it works two ways. By that, I mean: spend less (even a little) each month, and it's less to spend AND less to save (by ~25 times).

Most of us have been where you are mentally, for either long or short periods, regarding work/career frustration. My advice is to remain work focused while you're still working. You're clearly an organized, task oriented person (not an engineer are you?) so, use that skill to remain focused on work; a task or project at a time, which helps me sometimes. Then, when your frustrated again with work, focus for a while on your FIRE goals or something else outside work (hobby, exercise goals, etc). For me, this adds balance; almost like interval training - except for life.

Best of luck!
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Old 09-19-2011, 08:29 AM   #5
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Welcome. I'd add that you need to calculate a minimum budget and a budget-with-extras in retirement. Figure out how much in total assets that you need to FIRE on the minimum budget.

Once you hit your goal to sustain a minimum retirement lifestyle, I guarantee that your outlook at work will change dramatically. On the one hand you may quit stressing, knowing that you can leave any time. On the other, you may find it impossible to take the BS.

In either case, you will have the freedom to pursue what makes you happiest.
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Old 09-19-2011, 10:14 AM   #6
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Quote:
Originally Posted by 2021Dream View Post
A few months ago, we sat down and tried to figure out the exit strategy. We decided to shoot for 10 years as a target goal. Working it out on a spreadsheet, it's plausible, although perhaps a bit optimistic, that we could have between 3 and 4 million in liquid assets in 10 years. From my current perspective, the biggest risk to the plan is that a non-trivial part of that calculation involves some hard-to-predict bonus and promotion compensation, but I'm allowing myself the luxury of thinking that things will continue to go well for us.
I've always been a driven, goal-oriented person, and I find our new plan very invigorating. However, one downside to the plan that I've noticed is it's taken a lot of the steam out of the drive I've had in the past at w*rk. Having an exact end date in mind has a tendency to make the next 10 years seem like a jail sentence, as opposed to what it really is- an important chunk of my life that I don't want to miss out on, not to mention a once-in-a-lifetime opportunity to make the most out of raising my son.
I'm looking forward to the challenge of both keeping my eye on the prize, as well as stopping to smell the roses.
Welcome to the board, Dream.

It's achievable, especially if you're focused on your expenses. This calculation was oriented at military servicemembers, but the math is the same for everyone:
How many years does it take to become financially independent? | Military Retirement & Financial Independence

Another option would be to spring for ESPlanner software or a FinancialEngines.com membership (or possibly get FE for free through your 401(k) and crank hard on all the parameters. I found that doing the spreadsheets & calculators helped me focus on the goal, not the length of the marathon.

I don't know if it works for your current employment, but you should keep your eyes & ears open for those part-time opportunities. It might even be worth an employer/career change.

Quote:
Originally Posted by SandsofTime View Post
4. Pay off your house. Pay off your cars. Pay off all things that normally are bought on payments. This is very important. Pay off all your loans. All of them.
Hey hey hey, speak for yourself. Some of us have retired with substantial debt and a plan to carry it.

Despite Dave Ramsey's zealous insistence to the contrary, not all debt is bad. You can have your own opinion on the subject, but it's worth trying to entertain a more balanced perspective on everyone else's financial situations.
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Old 09-19-2011, 11:23 AM   #7
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Nords: The final composition of a person's financial setup in retirement may be as unique as their fingerprint. I think you would agree that the bottom line is to have your expenses be less than your income. Certainly, debt is ok if one has a defined benefit pension plan etc, or other source of fairly consistent income coming in. Also, some people are psychologically debt averse, whereas others have a much higher comfort level with carrying debt.

Regardless, carrying debt for many (I would say most) retirees is not a good thing. But of course, each person has a different situation.
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Old 09-19-2011, 11:36 AM   #8
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This forum has a large number of low or no debt members, but my sense is that most see debt avoidance as a personal choice and not a prerequisite to retire. In any case, what matters is not debt but net financial assets and cash flow. Debt itself can always be either an enabler or an anchor.
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Old 09-19-2011, 11:39 AM   #9
Confused about dryer sheets
 
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Thanks for all the great advice!

WRT debt, indeed one of the first big decisions we made when we came to this conclusion was to refi our house to a 15 year fixed @3.75%. The only other debt we have is a 2% student loan that I tend to mentally write-off as a minor nuance. Both interest rates are so low, I figure I will pay them off in full some day if I'm ahead of schedule, but otherwise I'll just let it ride out. We had been planning on moving up to a bigger, fancier house for the last couple of years. A part of my epiphany was when I figured out how many more years I'd need to keep working in order to do that, and how much more the property tax was going to be even after I reached that goal.

I've thought about breaking up the 10 year plan down to a 5 year plan as well. A couple of snags with that plan: 1- my wife (DW?) will reach full equity partner in her law firm around that timeframe, so the bulk of our savings will occur in the second 5-year phase. 2- my son will be getting ready for high school in 5 years from now, and we don't want to disrupt too much for him during that time. I do like the idea of just keeping the option open to have a "check-in" in 5 years where we put everything back on the table and re-evaluate our priorities.

Post-FIRE Budget-wise, we currently spend about 70-80K/year on expenses that we'll still have after FIRE, including fun stuff like vacations. Health insurance will of course be a big factor, but it seems like something we could absorb. Another factor is our son's tuition- We have fully funded our state's 529 plan, which guarantees our son 5 years (or the $ equivalent if he goes private or out of state) of tuition, room & board at the highest-priced public school in the state. (BTW- what a great investment that has been over the last few years!) I figure if he wants to choose a pricier option, we'll help him out as much as we can without disrupting our own plans, or he'll get to decide if it's worth it to take out loans. I had a similar decision point in my life when I was 18. While I chose the pricier option, that forced me to choose carefully what area of study I wanted to pursue. Sometimes I regret not having had more freedom to really explore what I wanted to do, regardless of earning potential, but at least I got started early on financial responsibility.

post-FIRE, I'd like to start off with a 3% or lower withdrawal rate. If we stay on track, that'll mean about 100K. I'm tempted to see if we could kick things off by seeing how low we could go for a few years, by means of living for awhile in different areas with lower costs of living. We live near a university, so we could easily rent out our house or maybe try out the house-swapping services we've seen. Or, if my son decides to stay local for school, he may want to take over the house while we get out of his hair. If it turns out we're a little light at the beginning, doing something like teaching a class or two at a community college somewhere else (Maui?) may be an interesting transition. We'll see how it goes...
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Old 09-19-2011, 12:50 PM   #10
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Rather than being optimistic wrt bonuses etc you should design your plan by being a little pessimistic about them. It sounds as if you are in good shape, but I've found that it's best to plan for the bad scenario and then be glad when you end up beating the plan. As an example I don't include potential inheritance money in my projections and I'm working on a 2% investment return.
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Old 09-19-2011, 10:03 PM   #11
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Looks like you're on a good path. Be flexible with your plan, as things change over time. But it's still good to have a goal, nothing wrong with moving it a little as things progress.
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