How to retire early — 35 years early

[FUEGO]

I did post a scenario some time ago in the forum "Do you need advice? Do you like helping others? Post your financial or life dilemma here and see if MMM or one of the other readers can help!" and man I was ripped a new one because I had $60,000 in yearly expenses (which included several big ticket one-time items). It was down right hostile and unfriendly so I did not feel posting over there again.

Yeah, it's funny how you have to pick the right forum to ask your question. If you spend $60,000 and are okay with it, post here. You'll be told you are just fine as long as you have $2 million and are okay with a 3% WR.

Go to the MMM forums if you want to be told how to cut it to $30,000 and how wasteful you are.

Go to the Early retirement extreme forum if you want to learn how to cut it to $15,000 and how that amount is still really wasteful.

Different strokes for different folks I guess.

 

[Fermion]

Yeah, it's funny how you have to pick the right forum to ask your question. If you spend $60,000 and are okay with it, post here. You'll be told you are just fine as long as you have $2 million and are okay with a 3% WR.

Go to the MMM forums if you want to be told how to cut it to $30,000 and how wasteful you are.

Go to the Early retirement extreme forum if you want to learn how to cut it to $15,000 and how that amount is still really wasteful.

Different strokes for different folks I guess.

Then go to Bogleheads and they will encourage you to wait until you have about $8,000,000.

 

[FUEGO]

Then go to Bogleheads and they will encourage you to wait until you have about $8,000,000.

Crap. I'm about 3 ER forums and a MMM forum short of $8,000,000.

2B, thanks for sharing that Greaney article. Good read and great news that his plans worked out very well for him. As another 30-something early retiree, I hope I can write that same type of article in another 19 years. I figure there's a 95% chance I won't be in the 5% of firecalc scenarios that end poorly.

 

[ProspectiveBum]

With regard to MMM crankiness or arrogance, that's just part of his shtick. He's been on a number of podcasts, and freely admits that he's actually a mild-mannered programmer-type. It's definitely been successful at getting people talking about him and his ideas.

I think the main problem with his SWR advice is that he's really only semi-retired. He does things "for fun" (because he's retired, of course) that just happen to pay him. He's written that he doesn't worry about the future because he's got a good brain and tons of skills (carpentry, house-building, programming, etc.), so he can always run out and get a "real" job if he needs to. That might work well for him, but I don't think most of his readers would be so adaptable in tough times.

I like the blog, but take everything in it with a grain of salt. His wife posted a while back about visiting her parents, and starting to feel increasingly anxious as they drove around town to a movie and then for dinner. All because of the wastefulness of using a car for those errands. That seems waaaaaaay overboard to me.

 

[MooreBonds]

Ok, in defense of the one medical bill wiping out someone out who lives on 15k a year, they might have their money safe in a 401K or IRA.

Example. Fred quits work at age 38, has $500,000 in a IRA, $100,000 in a Roth and lives on $15,000 a year. He starts withdrawing his contributions from his Roth, tax free, and also converts $20,000 of his IRA to Roth each year. This gives him $20,000 of MAGI which allows him to qualify for a heavily subsidized silver ACA plan with additional cost sharing.

At age 43 he starts taking out the Roth conversion amounts he started when he retired (at 38) tax free. He uses these for living expenses.

At 49 he is found at fault in a car accident and gets sued for $2,000,000 but declares bankruptcy with no change in his financial condition since his IRA is protected from creditors.

Not seeing the problem here...

1. Pulling $20k out of his traditional IRA to roll over into a ROTH requires him to pay taxes on that $20k. Sure, he gets deductions, but will still owe some taxes. That tax money has to come from somewhere, so his budget is $15k + his taxes on the ROTH rollover.

2. That 'heavily subsidized Silver' plan has a many thousand dollar deductible. Does Fred have the ability to spend 1/3 of his entire budget on healthcare? Yes, he can then deduct it against his taxes the following year, but he still needs to be able to have that cash available to spend if need be. And that's only if he hits his deductible. If he wants to go to the doctor or need any single kind of healthcare expense, he is on the hook for the first $6k, +/-.

If Fred lives in a state with expanded Medicaid, he can qualify for much lower cost healthcare...but then he has to drive to wherever they accept it. Which could be very far, and/or otherwise undesirable healthcare providers.

3. Is Fred's checking account exempt/immune from lawsuit protection? Does the creditor have the power to tell the bank to garnish the account when he transfers money into it from his traditional IRA? Or when he takes his withdrawals out each year from his ROTH IRA? Is he able to spend directly from his ROTH with 30+ withdrawals a month between his ATM/check card/etc. transactions?

4. And how does Fred pay for filing bankruptcy? It's not free, you know... Would be a big percent of his $15k budget.

Is Fred able to eke out an existence? Sure. Does it afford him much choice, much less any flexibility? Hardly, if any at all. Many of the readers aren't fully wrapping their heads around the fact that retiring in your 30s (even 40s) will leave you not working for longer than they have been alive up to that point! There's a LOT that can happen between retirement and death, which I don't think they are fully considering.

Imagine someone retiring in 1980 at age 35. Today they would be 70, and still likely have 10-14 more years to go - possibly more! Ignoring the stock market and just focusing on lifestyle and how the world is - do you think someone retiring at age 35 in 1980 would feel the same about life, the world, and their budget now as they did then?

When I make reference to a possible disaster impacting things, I'm not referring to the small chance of a $2MM lawsuit. I'm referring to the more frequently occurring things that happen in life - airfare to visit people, car repairs, homestead things (appliances, house upkeep), etc. - that, while much smaller impact, do add up and can have a big hit to a micro budget.

Or, even the simple act of a SCHEDULED medical procedure that ends up having 3 people who are involved who aren't in-network (even though the hospital and doctor are in-network), and which ends up billing you at the "out of network" rates that you might negotiate down a little but still are higher than your network rates.

 

[FUEGO]

I like the blog, but take everything in it with a grain of salt. His wife posted a while back about visiting her parents, and starting to feel increasingly anxious as they drove around town to a movie and then for dinner. All because of the wastefulness of using a car for those errands. That seems waaaaaaay overboard to me.

I think they are big into environmentalism. I doubt they really care about saving the couple of bucks of gas it takes to cruise around town to dinner and movies. It's the pounds of CO, CO2, NOX, etc pumped into the air and damage done to Mother Earth from extracting oil and refining it into gas.

I don't personally care a whole lot about the environmental side of things. I would care more about spending a few bucks and all the time wasted driving around when I could do dinner and a movie at home for nearly free and to my exact preferences.

 

[Fermion]

1. Pulling $20k out of his traditional IRA to roll over into a ROTH requires him to pay taxes on that $20k. Sure, he gets deductions, but will still owe some taxes. That tax money has to come from somewhere, so his budget is $15k + his taxes on the ROTH rollover.

2. That 'heavily subsidized Silver' plan has a many thousand dollar deductible. Does Fred have the ability to spend 1/3 of his entire budget on healthcare? Yes, he can then deduct it against his taxes the following year, but he still needs to be able to have that cash available to spend if need be. And that's only if he hits his deductible. If he wants to go to the doctor or need any single kind of healthcare expense, he is on the hook for the first $6k, +/-.

If Fred lives in a state with expanded Medicaid, he can qualify for much lower cost healthcare...but then he has to drive to wherever they accept it. Which could be very far, and/or otherwise undesirable healthcare providers.

3. Is Fred's checking account exempt/immune from lawsuit protection? Does the creditor have the power to tell the bank to garnish the account when he transfers money into it from his traditional IRA? Or when he takes his withdrawals out each year from his ROTH IRA? Is he able to spend directly from his ROTH with 30+ withdrawals a month between his ATM/check card/etc. transactions?

4. And how does Fred pay for filing bankruptcy? It's not free, you know... Would be a big percent of his $15k budget.

Is Fred able to eke out an existence? Sure. Does it afford him much choice, much less any flexibility? Hardly, if any at all. Many of the readers aren't fully wrapping their heads around the fact that retiring in your 30s (even 40s) will leave you not working for longer than they have been alive up to that point! There's a LOT that can happen between retirement and death, which I don't think they are fully considering.

Imagine someone retiring in 1980 at age 35. Today they would be 70, and still likely have 10-14 more years to go - possibly more! Ignoring the stock market and just focusing on lifestyle and how the world is - do you think someone retiring at age 35 in 1980 would feel the same about life, the world, and their budget now as they did then?

When I make reference to a possible disaster impacting things, I'm not referring to the small chance of a $2MM lawsuit. I'm referring to the more frequently occurring things that happen in life - airfare to visit people, car repairs, homestead things (appliances, house upkeep), etc. - that, while much smaller impact, do add up and can have a big hit to a micro budget.

Or, even the simple act of a SCHEDULED medical procedure that ends up having 3 people who are involved who aren't in-network (even though the hospital and doctor are in-network), and which ends up billing you at the "out of network" rates that you might negotiate down a little but still are higher than your network rates.

Ok, you also make a few mistakes.

1) Taxes for a single person with a $20,000 income are not $5,000. You would not pay SS or Medicare taxes on a IRA to Roth conversion, just the federal tax rate. I would have to run the numbers, but perhaps as little as $1,500 in federal tax, leaving you with $18,500 and a $15,000 budget.

2) The cost sharing feature of ACA for silver plans gets rid of a large portion of the out of pocket costs. It can bring a $6000 max out of pocket down to $1200 or even lower. Most people do not really understand cost sharing they only are thinking about the subsidy for the premium.

3) I do not know the ins and outs of bankruptcy...that was sort of tongue in cheek of me. Likely a person who only had significant assets in a IRA and no job would not even have to file bankruptcy. There would be nothing to garnish and the IRA assets are untouchable by creditors up to a pretty large limit for our fictional Fred's meager net worth. As for money he has under his mattress for day to day living expenses between Roth withdrawals, I think it would be extremely hard to target by creditors. If he owns a car outright, then that might be a problem. Fred rides a bike though and uses public transportation.

4) I agree the living is meager, but there sure are a lot of people who manage. Fred spends a few hours at the local library playing chess with a friend, then walks in the park for some exercise. He enjoys the simple things and really doesn't miss catching the norovirus on a cruise ship.

If Fred has to see out of network providers, then he will have to deal with balance billing. If it is a small amount, Fred pays it. If it is a large amount, Fred drops the bill in the trash can and waits for them to try and come after him.

 

[FUEGO]

2. That 'heavily subsidized Silver' plan has a many thousand dollar deductible. Does Fred have the ability to spend 1/3 of his entire budget on healthcare? Yes, he can then deduct it against his taxes the following year, but he still needs to be able to have that cash available to spend if need be. And that's only if he hits his deductible. If he wants to go to the doctor or need any single kind of healthcare expense, he is on the hook for the first $6k, +/-.

The hypothetical Fred will have ACA cost sharing beyond a big fat subsidy. Fred's about at the same % of poverty level that we are, and we qualify for a $105/month "gold plated silver" (my term) family plan that has $0 deductible and $2000 max out of pocket. $0 for primary docs, $20 for specialists. $100 ER. I guess there is still some risk that you could end up with an out of network doc somewhere and pay more. But there's also an even better chance you'll pay $2000 max out of pocket in bad years, and close to zero in good years.

YMMV of course on the particular plans available in your zip code and your willingness to accept limited networks (which you can switch each year if the $hit hits the fan, for an additional premium of course).
And if you get really sick, you might not be spending as much money on entertainment and travel.

When I make reference to a possible disaster impacting things, I'm not referring to the small chance of a $2MM lawsuit. I'm referring to the more frequently occurring things that happen in life - airfare to visit people, car repairs, homestead things (appliances, house upkeep), etc. - that, while much smaller impact, do add up and can have a big hit to a micro budget.

This is a good point, and the very early retiree will neglect to budget for these expenses at their own peril. Maybe some of those $15k/yr budgets don't cover these, maybe they do. We retired on a $32k/yr budget for a family of 5 (and a sub-3% WR) and my budget explicitly covers large and small capital items and routine maintenance.

Like replacing the roof, siding, appliances, HVAC, etc. And new(er) cars periodically. Car repairs are covered in regular maintenance and operation expenses (for me at least). Trips to visit people - all family is local or within 4 hour drive. If we had to fly, that would come out of the vacation/travel budget.

This past year we spent $2,500 above our budget because we did a major $8,700 exterior renovation (siding, windows, roof repair). We traveled for five weeks (3 international vacations covering 5 countries). DW had a crown put in.

Living on $30-40k a year isn't all that horrible. I think it's pretty sweet in fact! And if I was laid up with a major medical issue, odds are I wouldn't be traveling quite as much. Doctors appointments and follow ups would probably interfere with traveling when we want to.

 

[FUEGO]

2) The cost sharing feature of ACA for silver plans gets rid of a large portion of the out of pocket costs. It can bring a $6000 max out of pocket down to $1200 or even lower. Most people do not really understand cost sharing they only are thinking about the subsidy for the premium.

Agreed here. If you're near the 133% FPL cut off, you qualify for "gold plated silver" plans. Low or no copays and low or no deductibles plus low out of pocket maxes. It's only on the silver plans, so you might end up paying a slightly higher premium than you would on a bronze plan, but it's really gold plated coverage (with the possibility that your network might not cover every single medical provider in the universe, like most insurance anyway).

4) I agree the living is meager, but there sure are a lot of people who manage. Fred spends a few hours at the local library playing chess with a friend, then walks in the park for some exercise. He enjoys the simple things and really doesn't miss catching the norovirus on a cruise ship.

That's us, except we also enjoys cruises. If you can catch the last minute ones, they are dirt cheap. Figure about $400-500/person for a week of all-inclusive unless you're a heavy drinker.

 

[Fermion]

Agreed here. If you're near the 133% FPL cut off, you qualify for "gold plated silver" plans. Low or no copays and low or no deductibles plus low out of pocket maxes. It's only on the silver plans, so you might end up paying a slightly higher premium than you would on a bronze plan, but it's really gold plated coverage (with the possibility that your network might not cover every single medical provider in the universe, like most insurance anyway).



That's us, except we also enjoys cruises. If you can catch the last minute ones, they are dirt cheap. Figure about $400-500/person for a week of all-inclusive unless you're a heavy drinker.

My term for them is super silver plan with cheese. For low budget early retirees they are key.

We may have to look into last minute cruises when we ER this year. While having a bigger budget than Fred, I was not planning on spending more than about $5,000 a year on vacations. If I could get a one week cruise for two people for $1000 I might risk the viruses

 

[onebigdummy]

MMM is pretty good and the blog is well written if you like that style. He's pretty on par with Kiyosaki or Orman, but that is fine too if it helps.

 

[haha]

I like the blog, but take everything in it with a grain of salt.

This puzzles me. Why like something that is supposed to be informational, if the information content is so suspect that you must take it with a grain of salt?

Why not spend the time learning about WW1, or physics, or what women expect in a relationship? Any of these things can be useful

Ha

 

[clifp]

I have trouble choking down too much of this "I live on acorns and tree moss" lifestyles when they are clearly making good money on blogging and book sales. After a point, describing opportunities and other approaches becomes more useful and justifies reading their blog. I am much more impressed when someone says "I took a leap of faith and retired. Now, after years without a real job I am still in great financial shape." Here's a link to John Greaney's latest article.

20-Year Update: Retired at Age 38 in 1994 -- Lessons Learned

Thanks for the link. I've got out of the habit of looking at Intrcst (Greany) page, since he updates so infrequently. He is after all retired...

May 1, will mark the end of my 15 years in retirement. I guess I should do a similar write up.

 

[photoguy]

2) The cost sharing feature of ACA for silver plans gets rid of a large portion of the out of pocket costs. It can bring a $6000 max out of pocket down to $1200 or even lower. Most people do not really understand cost sharing they only are thinking about the subsidy for the premium.

The scaling of ACA subsidies for those with low income is very appealing for ER folks. It has the nice property that if one needs to cut back due to bad market returns, the amount of subsidy increases to the point where premium + max OOP is basically nothing.

However, trying to ER on a 20k/year budget is betting that the subsidy won't change for the rest of your life. This is not something I'd care to count on as an early retiree. Even something as simple as an asset test would sink you.

Another issue is that some health conditions might require additional expenditures not covered by insurance. For example, the particular prescription drug that works best for you isn't covered (happened to my wife), you break your leg and can't drive/walk/bike to the grocery store, the specialist you need to see is 200 miles away, etc.

 

[Fermion]

You bet on everything, so why not bet on the ACA subsidy and cost sharing remaining substantially the same throughout your retirement?

When you realize that all things in life are a gamble, even life itself, then you place your bets and roll.

I assign probabilities to things, and the probability that a major social program which benefits millions of voters would get drastically changed is quite low IMO. None of the other programs have changed drastically (age bump here and there for SS, plus some taxing of benefits).

Asset testing would be a nightmare and unpopular as hell.

 

[highlow65]

I occasionally enjoy MMM. I really don't think most people want to live on that little, but I think overall his message is pretty good. Try to live a simple life and care about something other than yourself. What I take out of it is decide what is important to you and make it happen. I like his case stories which give advice based on peoples situation, sometimes his advice is extreme but they asked his advice, he didn't seek them out to give it. While he can come across as smug he seems to genuinely want to make the word a better place. this is seen in his advocacy for greener living. I don't want to pinch pennies but I think you can benefit from his blog and certainly can find useful information in the forum. Decide for yourself what works for you, not everyone is as fortunate as most of us are in this forum.

 

[daylatedollarshort]

In my view, MMM is kind of like Dave Ramsey - both have really awesome advise and encouragement to live a thrifty/fiscally sound lifestyle in the here and now, in order to have fiscal independence and strength down the road.

However, MMM's trumpeting of the 4%SWR is just as dangerous as Dave Ramsey's "you can save and assume 12% annual mutual fund returns" - or, perhaps even more dangers than Dave Ramsey. Also, IMO, MMM is more of a snake-oil salesman in his story not quite being a complete picture and adding up (for example, things like his Hawaii vacation where he provided construction labor in exchange for a place to stay - which, as one person pointed out, is in violation of IRS rules and regulations).

MMM has MANY young people on his forum drinking the 4% SWR kook-aid without realizing what exactly is in the brew, and convinced with unshakable faith that anyone can retire on 4% in their 30s on a budget of $12k-$15k/year, and many are locked in on doing just that. But what MMM (and even MMM's wife) have failed in is abusing the 4%SWR references.

If there were ever specifics listed on how this 4% was all going to work out initially, I never found it. Buy a $400K house and have one rental and retire forever? Or have one paid off house and $400K in the stock market and retire forever in your 30s with a house to maintain and a child to support and no concerns about of sequence of returns risk?

So how much house did he have and how much in investable assets and what were they invested in when they were both retired in their 30s forever? (This was pre-ACA as well).

I think those numbers are really key to make a credible retirement plan but I never found any details on that. So maybe I am just not a careful enough reader and I didn't understand how the net worth was allocated between stocks, a rental house, a personal residence and any other asset classes. Does anyone else know?

 

[FUEGO]

So how much house did he have and how much in investable assets and what were they invested in when they were both retired in their 30s forever? (This was pre-ACA as well).

I think those numbers are really key to make a credible retirement plan but I never found any details on that. So maybe I am just not a careful enough reader and I didn't understand how the net worth was allocated between stocks, a rental house, a personal residence and any other asset classes. Does anyone else know?

I want to say he had $800k saved in mostly S&P Vanguard index fund plus the rental house. I think the $800k has grown over the years (market returns+adding more from side hustle income like carpentry/home improvement stuff). He said he plans to use the $$ from the blog (which is probably six figures each year) for charity. That's his claim, not mine.

 

[FUEGO]

You bet on everything, so why not bet on the ACA subsidy and cost sharing remaining substantially the same throughout your retirement?

When you realize that all things in life are a gamble, even life itself, then you place your bets and roll.

I assign probabilities to things, and the probability that a major social program which benefits millions of voters would get drastically changed is quite low IMO. None of the other programs have changed drastically (age bump here and there for SS, plus some taxing of benefits).

Then, assuming a highly negative personal outcome for any changes to SS, ACA, Medicare, etc factor in that the great majority of time series returns for your portfolio will be highly positive (even after withdrawing 3-4%).

Assuming long term market returns and drastic reductions in social spending (SS, medicare, ACA) are independent events (no correlation between them), then the cumulative probability of having a highly detrimental change in social programs AND really bad long term market returns is pretty low.

 

[FUEGO]

My term for them is super silver plan with cheese. For low budget early retirees they are key.

We may have to look into last minute cruises when we ER this year. While having a bigger budget than Fred, I was not planning on spending more than about $5,000 a year on vacations. If I could get a one week cruise for two people for $1000 I might risk the viruses

I don't know what the cruise market is like near Seattle, but here in the southeast US we can drive to local ports in FL in 7 to 11 hours (Charleston is only 4-5 hrs for us). Really cuts down on transport costs vs. flying, and no worries about last minute flight prices.

From tracking cruise prices, the cheapest ones right now are from Los Angeles (Long Beach) at about $26-28/nt+taxes+gratuities. FL based cruises are just a little more at $32-33/nt++.

Our last two cruises worked out to $67/nt including cruise fare, taxes, gratuities, port parking, and gas to/from the port.

 

[Helen]

I have trouble choking down too much of this "I live on acorns and tree moss" lifestyles when they are clearly making good money on blogging and book sales. After a point, describing opportunities and other approaches becomes more useful and justifies reading their blog. I am much more impressed when someone says "I took a leap of faith and retired. Now, after years without a real job I am still in great financial shape." Here's a link to John Greaney's latest article.

20-Year Update: Retired at Age 38 in 1994 -- Lessons Learned

Thank you for the link, 2B. John is the person who set the light bulb off in my head. I am please to see that he moved to my neck of the woods. I hope to meet him someday, I'd love to buy him a beer.

 

[EastWest Gal]

I think they are big into environmentalism. I doubt they really care about saving the couple of bucks of gas it takes to cruise around town to dinner and movies. It's the pounds of CO, CO2, NOX, etc pumped into the air and damage done to Mother Earth from extracting oil and refining it into gas.



I don't personally care a whole lot about the environmental side of things. I would care more about spending a few bucks and all the time wasted driving around when I could do dinner and a movie at home for nearly free and to my exact preferences.

Not to mention that it's about 12 degrees outside right now, at least where I live.


Sent from my iPhone using Early Retirement Forum

 

[daylatedollarshort]

I want to say he had $800k saved in mostly S&P Vanguard index fund plus the rental house. I think the $800k has grown over the years (market returns+adding more from side hustle income like carpentry/home improvement stuff). He said he plans to use the $$ from the blog (which is probably six figures each year) for charity. That's his claim, not mine.

Okay, I looked just now. $800K net worth in year 10. Initially one house and two rentals, then one $400K house and "eventually both rentals were sold and the gains were put elsewhere."

So a $400K house and $400K in investments and no more paying into Social Security since there is no need to work. Even at 4% real and no bad sequence of returns outcomes that is still only $16K a year. Medicare and other health related costs for those 65+ alone for two people are around $10K a year. I guess I have bad math and budgeting skills as I wouldn't know how to retire forever in my 30s, or even come close to it, on those kind of numbers, even if I did ride my bike more and had a cheaper cell phone plan.

We've had much more than $16K in medical bills and premiums alone in a single year.

 

[photoguy]

You bet on everything, so why not bet on the ACA subsidy and cost sharing remaining substantially the same throughout your retirement?

Obviously everyone must make this decision for themselves but for me this is simply an unnecessary bet to make and I have no need to take this risk. We had relatively high earnings during our work years and so the marginal gain in retirement duration by pulling the plug even earlier would have been inconsequential.

When you realize that all things in life are a gamble, even life itself, then you place your bets and roll.

Did you take (or plan to take) this bet yourself -- i.e. do your own retirement plans require ACA subsidies staying in place? or will you be ok without them?

I'm happy to have ACA subsidies but they were not required for us maintain our desired standard of living in FIRE.

I assign probabilities to things, and the probability that a major social program which benefits millions of voters would get drastically changed is quite low IMO. None of the other programs have changed drastically (age bump here and there for SS, plus some taxing of benefits).

I'm a great believer in probability as the basis for decision making but I also realize that humans (especially myself) are notoriously bad at estimating probabilities and tend to treat "unlikely" as "impossible". Stuff happens (not just with healthcare) and having an asset buffer or room to cut back expenses may help tremendously with a wide variety of bad events.

 

[Fermion]

Did you take (or plan to take) this bet yourself -- i.e. do your own retirement plans require ACA subsidies staying in place? or will you be ok without them?

I'm happy to have ACA subsidies but they were not required for us maintain our desired standard of living in FIRE.

I am probably at 3% SWR if we can depend on ACA subsidies and 4% SWR without them.

If we lose ACA subsidies but can go back to catastrophic healthcare plans that don't cover things like pregnancy, addictions, etc. as in the old days, then I would be ok. If I am forced into the new era of healthcare plans I want the subsidy that goes with it.