My plan to retire at 35

[daylatedollarshort]

I think your plan is intriguing. We were good savers compared to most when we were your age, but it never occurred to us to save like that to retire so early. Congratulation on your well laid out plan.

I do think your expenses might go up more than you planned when your kids are teenagers, especially your grocery bill. Even if they commute to college you will probably need another car or two at teenager insurance rates. Then there are costs for sports activities, prom, school civic club outings in other cities, etc. Plus older kids generally need at least some spending money for movies, new clothes, a cell phone and eating out with friends. When your kids reach college age I think you will need to pay for dental care.

If you plan to stay in your house, as houses age usually you have to at least put on a new roof, replace a fence, level a sagging foundation, etc. Most carpets and floors don't last forever, either. Sometimes old trees die and have to be cut down before they fall down. I think your home repair expenses will most likely be more than your budget.

I am not sure what your health care out of pocket max would be each year but with 5 people the odds are that in at least some years you will hit that are pretty decent. If someone developed a chronic illness or had a serious car accident you could hit your out of pocket each year for years into the future.

On the plus side, since your expenses are relatively low and you have two nonworking adults in your plan, even a couple of part time jobs or an at home business would cover a big part of your expenses. Just making $5 an hour at fiverr or mturk for 4 hours a day between you and your wife would add $7300 to your annual budget. Maybe make another $3K a year blogging, another $3K mystery shopping and $200 in signon bonuses and there is another $6.2K for $13.5K total without having to have a job in a cubicle with a long commute and rigid hours.

Or maybe instead of not working at all you could follow the Millionaire Next Door model and find some kind of self employment work you love to do so it doesn't seem like work. Or find a rewarding part time job or something you can do from home, like online tutoring or forum moderator for a corporate web site.

Good luck. I think you have the right idea. I like the idea of living somewhere with homes that cost $140K. We need to reduce our housing costs to levels like yours.

We have friends that retired very early and cut costs by moving to a low cost of living resort area and buying a manufactured home. In hindsight they had the right idea. They have enough money for extras like vacations and entertainment because their baseline expenses, especially their housing costs, are so low.

 

[FUEGO]

Your plan looks pretty good to me but what if everyone your age with a large income learns about it and decides to follow in your footsteps? If the politicians were to figure it out they would have to change from our current income based tax system to an asset based tax system.

That does concern me a tiny bit. The asset taxation part, not the everyone my age figuring it out part (because that would never happen). I figure there would be a generous exemption (let's say a million bucks) and then various don't-counts in there (like don't count 401ks or IRAs or something). Then different ways to avoid it.

The bottom line is that I doubt someone who is piddling rich like me would get really hard with an asset based tax, unless we had some form of Bolshevik revolution here (60 years of retirement is a long time and stranger things have happened of course!).

And if by chance my portfolio grows to the sky and one day I have 5 million or 10 million in real 2013 dollars, I would get hit with a wealth tax pretty hard. But I could probably afford it at that point.

 

[FUEGO]

Fuego - Our budget is similar to yours (a little higher), and savings just a little higher. I was 35 when I pulled the plug. Here is what I noticed: Gas expenses and utility expenses went up. Utilities because we heat the house during the day now. Gas (fuel) expenses went up because we're doing more stuff. Firecalc says you (and we) are OK, but I still worry because it has only been a year, and it has to last so long. Having pulled the plug, I kind of wish I stayed longer: I liked my job, and maybe I would worry less if there were a larger buffer. Sure, Firecalc says OK, but projecting that many years is pretty hard. Of course, it is hard to know exactly when to do it; now is a good time to be spending with your kids. I hope you have concrete plans of what you will do once you're not w*rking any more. It is especially hard for me: all of my friends are excited about their careers, doing interesting things, and I sometimes can't help but wish that I was helping w*rk on the "next big thing" from time to time. You've probably heard this before too... If I could do it over again, I would have asked the boss for some major vacation(s) so I could "test the waters" of retirement. 35 is pretty young to retire. Of course, you may be different! I hope my reply helps in some way.

Thanks for a report from the field so to speak. Yes, the "one more year" syndrome is already hitting me. I just don't know if I will be able to pull the plug in 3 years or so when we hit the magic number. It would be pretty easy to stick it out another year and pile up another $100-200k (depending on market returns and other factors).

The good news is that I will have 3 more years experience with my budget and a better idea where tax policies and health care policies are in 3 years time before I make a decision on ER'ing.

And yes, your reply definitely helps. I think it is totally natural to think "what if I had stuck it out 1 more year".

I may take some significant time off before calling it quits to give it a shot.

 

[jayc]

I think you are confusing the word 'Plan' with the word 'Scam'. Gaming the current system with your net income is not the way to live. Karma can be very brutal. I am very surprised at the number of members on this board that even think this is a viable above board plan.

 

[FUEGO]

William Bernstein suggests 2% withdrawal rate is iron clad for those retiring under 65 and 3% is "probably" safe. Would your career lend itself to re-entry down the road?

I would like to think so. It is in a technical field but not one that evolves very rapidly. I work for a government agency right now, and I could most likely come back after 10 years and do some drudge work at the agency if worse came to worst. I couldn't see making less than $50k/yr at any position with the current employer (I think they pay college grads a bit less than that). Of course the longer I am out the harder it would be to come back, mainly because contacts go away.

 

[FUEGO]

I do think your expenses might go up more than you planned when your kids are teenagers, especially your grocery bill. Even if they commute to college you will probably need another car or two at teenager insurance rates. Then there are costs for sports activities, prom, school civic club outings in other cities, etc. Plus older kids generally need at least some spending money for movies, new clothes, a cell phone and eating out with friends. When your kids reach college age I think you will need to pay for dental care.

I think the temporarily increased kid expenses during teenage years is probably the weak point in my financial plan. I really don't have a good handle for what they will be exactly so I'll probably have to dig a little deeper. I may take out my $2k/yr expense for "increased kid costs" and just add in an extra $30k per kid or something. They are kind of lumpy expenses that will hopefully go away after a handful of years (or more accurately turn into college expenses).

We give the kids an allowance now (the 6 and 7 year old) and they are pretty good with money already (like their ole dad!). I would like to slowly convert them to living within a budget in order to constrain my costs. As in, here is $300 for clothes for the next 6 months, make it work. Here is $200 for school activities, field trips, after school clubs, etc. Budget it or cover extras out of your allowance/babysitting money/lawn care/after school job etc. Wishful thinking perhaps but probably good skills to learn early on before they blow themselves up financially in college or early adulthood.

If you plan to stay in your house, as houses age usually you have to at least put on a new roof, replace a fence, level a sagging foundation, etc. Most carpets and floors don't last forever, either. Sometimes old trees die and have to be cut down before they fall down. I think your home repair expenses will most likely be more than your budget.

From my professional background, I'm pretty good at contract procurement and administration and construction management. So I have a competitive advantage against the average homeowner. And I'll have the time to shop around and get good well scoped bids from contractors, or for a bigger job, project manage multiple subs.

I am probably leaving out some costs for home repair - the fence replacement is one I didn't account for, nor a concrete driveway replacement for example (although ours is very new and industrial grade). Those are fairly discretionary in terms of timing, and I could always do some work myself or hire an hourly helper to assist if I were too frail or physically unable to do hard labor. Having no HOA gives me a lot of latitude in terms of when home maintenance tasks occur and expense of those repairs.

I am not sure what your health care out of pocket max would be each year but with 5 people the odds are that in at least some years you will hit that are pretty decent. If someone developed a chronic illness or had a serious car accident you could hit your out of pocket each year for years into the future.

I don't remember the obamacare out of pocket max for my income level but it was pretty low (probably higher than I budgeted though). I hope to have concrete details of how this obamacare thing will work for my family with the 5 of us, and with just DW and me down the road. Any lumpy high expense years might mean one less Caribbean cruise or postponing a new car purchase a year.

On the plus side, since your expenses are relatively low and you have two nonworking adults in your plan, even a couple of part time jobs or an at home business would cover a big part of your expenses. Just making $5 an hour at fiverr or mturk for 4 hours a day between you and your wife would add $7300 to your annual budget. Maybe make another $3K a year blogging, another $3K mystery shopping and $200 in signon bonuses and there is another $6.2K for $13.5K total without having to have a job in a cubicle with a long commute and rigid hours.

Or maybe instead of not working at all you could follow the Millionaire Next Door model and find some kind of self employment work you love to do so it doesn't seem like work. Or find a rewarding part time job or something you can do from home, like online tutoring or forum moderator for a corporate web site.

I have thought about this a lot. Lots more free time could equate to entrepreneurial ideas and unanticipated income. We do credit card sign up bonuses now and get all kinds of free travel and airline miles, gift cards, and cash. I could probably score a few thousand per year continuing this racket (that's about where I am at the last 5-7 years on average).

I also have the chance to do some very easy work for $15-20/hr plus untaxed travel reimbursement if I wanted to do it. And as much or as little as I wanted. And probably some interesting serendipitous travel experiences/paid vacations (while I'm not working the few hours per day that I would be required to do). That used to be in my financial model providing $5000-6000/yr but I dropped it out since I'd prefer not to HAVE to work.

I recently started learning how to develop android apps. I really enjoyed programming back in high school and college and never picked it back up beside small stuff for work-related applications (like script development). I quickly figured out learning how to develop a good app would take too much time so I dropped that pursuit. I would like to have the free time to pick up something like that and dive in for a few days if I wanted.

Bottom line is there are so many ways to make a buck, it isn't like quitting a job means you are forever barred from earning another cent.

Good luck. I think you have the right idea. I like the idea of living somewhere with homes that cost $140K. We need to reduce our housing costs to levels like yours.

We have friends that retired very early and cut costs by moving to a low cost of living resort area and buying a manufactured home. In hindsight they had the right idea. They have enough money for extras like vacations and entertainment because their baseline expenses, especially their housing costs, are so low.

This is sort of how I view our spending - keep fixed costs low, and splurge when we have the portfolio to support it. And acknowledge that if times get tough (low investment returns), we have to make the hard decision to cut back spending and do less fun stuff or make more money somehow.

 

[FUEGO]

To have 1.4M in income producing assets by 35 is amazing. At 33 I'm only at 244K, and I feel like I've been a very diligent saver. I've got a long way to go. Can I ask what your current income is and how much you have been saving? Did you have any windfalls?

Household income is very very very very low six figures, and we have worked our way up to that point. DW and I both work and that household income includes both salaries. As you can tell from my budget outline, we spend very little. On an annual basis we are able to add close to $100,000 per year to our investments in recent years, and $70-80k per year a few years ago. Contributing this much to our portfolio in tax deferred accounts also means we owe very little in taxes each year.

We have never had any windfalls like inheritances or stock options.

 

[FUEGO]

For what it's worth, the levels I set for myself would be analogous to the following in your case (which I consider as ~30k budget with ~8.3k discretionary on top). I would either try to accumulate double the minimal budget at 3% swr (30k*2 / 0.03 = 2M), or use your budget at 2% swr (38k / 0.02 = 1.9M). Either way it's about 2M that I would be comfortable with in your situation, personally.

P.S. BTW, do you plan to get umbrella insurance policy? For how much? Flood insurance?

Part of me says the smart thing to do is stick it out a few years beyond age 35 and pile up another half million or so like you suggest. Whether I view the extra money as permitting a much lower withdrawal rate or an extra $500,000 buffer is largely irrelevant since it would provide a huge additional margin of safety either way.

As for umbrella policy, no I don't plan on one but I do have high limits on my auto and home policies. The bulk of our retirement savings would be exempt from creditors, and I am pretty cautious about exposure to liability. We dropped the flood policy years ago because the City spent $2 million to fix nearby drainage problems (and build us a lake in the process!), and I have reviewed the flood calculations and observed a 50 year rain event and determined the current physical infrastructure would probably handle a 100 year storm well, and even more. And the flood policies are expensive with high deductibles and are hard to get payment I have heard. Risk/reward says the cost isn't justified.

 

[FUEGO]

Lots of good comments and advice here. The one comment I haven't seen is that you should consider a more conservative AA than 80/20; perhaps 60/40. The reasoning would be: less volatility, your lack of any fixed income sources other than SS, and your looooong ER horizon.

This is the "if you've won the game..." approach. I'd suggest you run 60/40 in FIREcalc to see what you get.

I think we are ok with the volatility and understand it may mean some years we spend less. My bigger fear than volatility is inflation. Having 40% of our assets tied up in fixed income investments barely covering inflation each year (at today's rates) isn't the way to a 50-60 year portfolio survivability, and certainly isn't the way to allow for some lifestyle expansion if some awesome new things to spend money on are invented in the next few decades.

The studies show a high equities allocation is optimal for 50-60 year withdrawal periods.

 

[Live And Learn]

I am very surprised at the number of members on this board that even think this is a viable above board plan.

Did anybody actually say that ? or did they just say "the numbers work". I'm not going to get into what I think about the plan from an ethics or political POV ...

I think the numbers are tight and that the buffer is much less than I could live with (and MY buffers are seen as inadequate by some on the board) ... but ... given what we've been told .... "the numbers work"

 

[FUEGO]

Very interesting! Fantastic budgeting. Is your wife on board with that budget for 60 years?

I discuss the budget with her and tell her "we can change any of these budgeted amounts, we just have to accommodate the spending in our plan somehow (more risk, larger portfolio, cuts elsewhere etc)". She is on board NOW (she doesn't particularly want to work either) but I wonder if in 20 years she (or I) will be content if we can't do things we want due to lack of funds.

 

[Live And Learn]

but I wonder if in 20 years she (or I) will be content if we can't do things we want due to lack of funds.

I know that feeling ! I think I'm changing my retirement date to 2015. I will use the two years to accumulate 100k so I can retire just a little bit better plus another 100k of cushion of other "OMG ! $hit happens" expenses.

Why have OMY syndrome when TMY (two more years) gets you twice as much ?

 

[daylatedollarshort]

I have thought about this a lot. Lots more free time could equate to entrepreneurial ideas and unanticipated income. We do credit card sign up bonuses now and get all kinds of free travel and airline miles, gift cards, and cash. I could probably score a few thousand per year continuing this racket (that's about where I am at the last 5-7 years on average).

I also have the chance to do some very easy work for $15-20/hr plus untaxed travel reimbursement if I wanted to do it. And as much or as little as I wanted. And probably some interesting serendipitous travel experiences/paid vacations (while I'm not working the few hours per day that I would be required to do). That used to be in my financial model providing $5000-6000/yr but I dropped it out since I'd prefer not to HAVE to work.

I like to do some of the extra money making ideas like on fatwallet and slickdeals. This past year I also probably made 5 - 10K in cash back credit card rewards, free products for writing reviews, signon bonuses, recycling ink cartridges, selling stuff to Amazon for gift cards, free birthday meals, and just stuff like that.

I sign up for store newsletters and it is wild how many will send gift certificates and give away free merchandise just to get you in the store. Of course I go and get the free stuff and never buy anything else.

Our library has free passes for about 30 different museums, zoos, plays, gardens, historical sites and other activities. When I was working full time I never even knew all this kind of free stuff existed because I didn't have any time to do the research.

Once you aren't commuting and working full time at a regular job then saving money, making money from credit cards and signon bonuses and getting free stuff can kind of become your new job. If you have time to grocery shop just the loss leaders from all the grocery stores each week and cook from scratch you can get your grocery bill super low, too.

 

[FUEGO]

How will you occupy your time, and will those activities add to costs?

Hiking
Urban exploring
Working out
Tennis
Playing with kids
Reading
Play European board games
play video/computer games
Writing, maybe blogging
Video production
Volunteering - more at the policy level than getting my hands dirty. maybe get on a non-profit board or get more involved with a think tank, advocacy group, tech start up/incubator, etc
Be more involved at kids' school
Entrepreneurial activities
Techie stuff (PV solar panels on roof?? Solar hot water heater? Wind turbine?)
Programming
Art

And then after lunch I'd like to...

Most of this stuff is free or darn close, or if it costs something substantial it will have a very high return on equity.

Some of these activities might generate income or have a tiny chance of leading to a huge pay off (though that wouldn't necessarily be the goal going into the activity).

 

[FUEGO]

I like to do some of the extra money making ideas like on fatwallet and slickdeals. This past year I also probably made 5 - 10K in cash back credit card rewards, free products for writing reviews, signon bonuses, recycling ink cartridges, selling stuff to Amazon for gift cards, free birthday meals, and just stuff like that.

I sign up for store newsletters and it is wild how many will send gift certificates and give away free merchandise just to get you in the store. Of course I go and get the free stuff and never buy anything else.

Our library has free passes for about 30 different museums, zoos, plays, gardens, historical sites and other activities. When I was working full time I never even knew all this kind of free stuff existed because I didn't have any time to do the research.

Once you aren't commuting and working full time at a regular job then saving money, making money from credit cards and signon bonuses and getting free stuff can kind of become your new job. If you have time to grocery shop just the loss leaders from all the grocery stores each week and cook from scratch you can get your grocery bill super low, too.

I do most of this right now, which undoubtedly helps our budget figures. I do have a limit on how many hoops I'll jump through to make a buck and focus on high reward low risk, low time commitment deals as a result.

 

[catccc]

Household income is very very very very low six figures, and we have worked our way up to that point. DW and I both work and that household income includes both salaries. As you can tell from my budget outline, we spend very little. On an annual basis we are able to add close to $100,000 per year to our investments in recent years, and $70-80k per year a few years ago. Contributing this much to our portfolio in tax deferred accounts also means we owe very little in taxes each year.

We have never had any windfalls like inheritances or stock options.

that is great! I hope in the near future I can add as much to our investments! Our expenses for a family of 4 are actually slightly under yours, except we are a one income ($85K) family, so there isn't quite as much to save... Hopefully we can plan on banking more when our kids, currently 1 & 4, are both in school and DH can do work other than raising kids!

Hiking and European board games. Sounds like what I'd like to do in retirement! A friend recently introduced me to a new favorite, Dominion.

Good luck!

 

[gerrym51]

why not retire at 30

 

[FinancialDave]

Let's just look at this school issue first. Are you saying tuition and books is $30,000 for the 4 years. This seems quite low. I recently ran a projection for a 6 & 8 year old to go to a state school in the WA / OR area, and in 2023 I projected this 4 year cost to be $172,000 per child. This is both tuition and living, since not many college students want to live at home, though maybe you plan for them to fund half, but even tuition only would be about half that or $86k.

The other problem with your assumption would be the low returns of any college money you have invested --- these can not be in 100% equity, or really even in the stock market at all once you reach a year or two from college. Could your college fund really take a 40% drop in the year before college starts. This would be a good way to turn a 4 year college fund into a 2 year Community College fund!

Also, I don't know where you have this college money -- in a tax deferred 529 plan, or do you plan on paying taxes on this money as you pull it out. This would substantially raise your tax obligation while funding two kids for college at the same time.

 

[aaronc879]

why not retire at 30

I'm sure he would've if he could've. I know I would've.

 

[NanoSour]

Let's just look at this school issue first. Are you saying tuition and books is $30,000 for the 4 years. This seems quite low. I recently ran a projection for a 6 & 8 year old to go to a state school in the WA / OR area, and in 2023 I projected this 4 year cost to be $172,000 per child. This is both tuition and living, since not many college students want to live at home, though maybe you plan for them to fund half, but even tuition only would be about half that or $86k.

The other problem with your assumption would be the low returns of any college money you have invested --- these can not be in 100% equity, or really even in the stock market at all once you reach a year or two from college. Could your college fund really take a 40% drop in the year before college starts. This would be a good way to turn a 4 year college fund into a 2 year Community College fund!

Also, I don't know where you have this college money -- in a tax deferred 529 plan, or do you plan on paying taxes on this money as you pull it out. This would substantially raise your tax obligation while funding two kids for college at the same time.

All very good points regards future college costs.

I suspect the Expected Family Contribution (EFC) in this case will be in the 10-15K range with no income. So his planned costs should be lower than the 25-30K cost of a decent public University. I'm in the same situation and just ran the calculator and got an EFC of 11K for my situation.

Even if you can afford it, I think it's good to make the kids pay/work for some of their college. But this is another topic.

 

[walkinwood]

OK,

I ran what numbers I do know through ESP and you look to be in very good shape.

...

I think you are all set.

The last time I use ESP+, they also had conservative/aggressive settings for MC results. What did you use? Also, OP indicates that at some point he'll have a plan to move away from a 100% equity portfolio.

If you are using ESP's average yearly performance / inflation numbers then you're discounting any sequence of return issues. I found this option to be useful to compare two different scenarios (eg. taking SS at 62 or 67, working additional years etc.), but I wouldn't base ER success on it.

 

[plex]

I'm sure he would've if he could've. I know I would've.

I sure would have if I could have too.

With 20/20 hindsight, I could have hit it at 31 without doing anything ridiculous or relying on luck, 30 though would have required something like graduating from high school a year early, by using all my electives to take community college classes, instead of starting at 7am and finishing my 11am in my senior year, which was pretty fun. The big time trap was getting that law degree instead of jumping into a lucrative, fairly easy career that was already waiting for me (because of my hard work in undergrad), it is going to take an extra 5-6 years thanks to that.

 

[FUEGO]

I sure would have if I could have too.

With 20/20 hindsight, I could have hit it at 31 without doing anything ridiculous or relying on luck, 30 though would have required something like graduating from high school a year early, by using all my electives to take community college classes, instead of starting at 7am and finishing my 11am in my senior year, which was pretty fun. The big time trap was getting that law degree instead of jumping into a lucrative, fairly easy career that was already waiting for me (because of my hard work in undergrad), it is going to take an extra 5-6 years thanks to that.

I'm pretty sure law school cost me a few years toward ER in terms of time not progressing the career I ended up in, and in opportunity cost of not working 3 years. And not having those 3 years of savings invested for the last 10-12 years. Same thing for DW (law school grad not using the degree). Law school was interesting and somewhat challenging at least.

 

[Alex in Virginia]

Fuego,

Good for you!

You NEED to check out mrmoneymustache.com. You're going to find that blog to be an absolute goldmine of useful, applicable, innovative ideas on how to get where you want to go.

And please do yourself a favor. Ignore any naysayers that should react to this post with scoffing and hrmmphing devoid of any factual criticisms.

See for yourself.

Good luck,

Alex in Virginia

 

[lhamo]

I am surprised that you are currently paying nothing on student loans on IBR with a combined 6 figure income. Is that because you are putting the maximum into retirement accounts and reducing your AGI?