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Save aggressively early, then downshift? Any experiences?
Old 11-06-2012, 07:41 PM   #1
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Save aggressively early, then downshift? Any experiences?

Still well within our "accumulation" phase, my wife and I find ourselves liking the idea of saving aggressively in our 30's, to get to a point where our retirement accounts (with average gains until we're 55+) will grow enough to support us in late retirement, while we switch gears to part time jobs.

After editing that sentence a couple times, I find it hard to understand myself. Here is our current idea:

Age 22-40: Save aggressively, until we meet a retirement account goal.
Age 40-55(or 60): Switch to part time work, just enough to cover bills, don't contribute much to retirement, enjoy life, watch retirement account gain interest.
Age 55(or 60)+: Completely stop working, use the retirement account (that has grown for the past 20 years) for income.

Does anyone on this forum have experience with a similar strategy? I'm curious.
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Old 11-06-2012, 07:50 PM   #2
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I went with the more constant lifestyle approach. While your 50 year old self will think your plan is pretty good, your 35 year old self is sacrificing financially. Perfectly valid thing to do though, if you can.
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Old 11-06-2012, 08:54 PM   #3
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Certainly doable if you don't mind making the sacrifice in your early years. It's not without risk though. You could lose the nest egg (and your effort) via a portfolio crash, or stumble into poor health such that you cannot enjoy what you've saved.

One way is to w*rk long hours or multiple j*bs early on. The nest egg can grow quickly because the more time you spend w*rking, the less time you have to spend the earnings.
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Old 11-06-2012, 09:13 PM   #4
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This is a good way to go about it. The biggest reason is simply that by starting to save aggressively earlier on, you will have the power of compounding working for you longer.

I'm following a similar strategy. I started saving aggressively ten years ago and I'm at the point now that despite my massive savings rate, I'm just barely putting away an equal amount to what I get each year from my investment returns.

My current guesstimate is that I will be able to ESR (early semi-retire) by age 45 and then fully retire by at least 60.
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Old 11-07-2012, 12:28 AM   #5
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Your plan seems reasonable but with the caveat that your gains may not be sufficient - causing you to either delay completely your ER plans or, worse, forcing you to go back to w*rk full time.

Still, it would have worked for us. Here is what happened. At 51 (yeah, that's a bit more than 45) my pension vested. At that time, we had sufficient assets to do what you suggest. In fact, I continued to w*rk full time until 58 (lots of reasons). BUT, during those extra years, my "stash" made me more money than my salary! So, if you're feeling lucky, I'd say "go for it". An alternative is to continue full-time for just a few years instead of part time for even more years. In any case, good luck and remember that YMMV.
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Old 11-07-2012, 06:19 AM   #6
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So, we have a few things going for us that would make this plan easier.

We're fairly high earners (~$150k gross right now total, with the wife working 60% full-time), and my wife has a decent pension package at her current company that is ready at age 60.

So, our current "save aggressively" isn't too depriving (at least that's how we feel).

Of course, I think we'd be willing to re-evaluate our working situations as we go, to ensure we can actually fully get out on time.
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Old 11-07-2012, 06:42 AM   #7
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This strategy could work, particularly if you are willing to adapt to the changing situation. You could run simulations using esplanner from esplanner.com. It handles federal and state taxes, SS benefits, Medicare costs, life insurance, relocation, and may other parameters. There may be other calculators that would be useful too, but esplanner is the one I have been using for years. In our case it helped me estimate the lifetime benefits from moving abroad to a lower cost-of-living area and delaying SS benefits until age 70, among other variables.

The best thing about a save early strategy is it gives you the most opportunities to recover if something goes against you.
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Old 11-07-2012, 06:57 AM   #8
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Your strategy should work fine. It doesn't sound like you'll be depriving yourself so what's to lose?
By the time I hit 55 I had plenty in my 401k. The only reason I keep contributing at all is to get the company match. With that said don't forget taxable accounts as a large part of your ER plan. That is one area I feel I'm a little light as about 90% of my investments are in retirement accts which create some hassles for early withdrawals.
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Old 11-07-2012, 08:10 AM   #9
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What appears to me to be the wrench in the works is the reality that when you get to age 40 and you have an even sweeter salary than you have now and realize that when you quit to take on a parttime job you will probably be working at least half as hard for a quarter of the income -- That would be a really hard choice for me to make.....
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Saving early
Old 11-07-2012, 10:37 AM   #10
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Saving early

I did a variation of what you are talking about and it worked great. I saved aggressively for around 12 years while my kids were young. It wasn't really a hardship as our life consisted of raising our young kids and spending our free time with them rather than traveling and buying a bunch of stuff. My nest egg grew to the point where I was able to take a job I liked better but paid less and over the next 15 years I spent every dime I made. The money I had invested young had time to grow and compound to the point where I was able to retire last spring at age 56.

By paying off any debt, living below your means and saving a bundle while you are young you will be better off than 95% of your peers. You will at least be in the situation where you have lots of options.
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Old 11-07-2012, 11:12 AM   #11
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More than one reasonable approach...what we did, partly by plan and partly by fortunate accident:

age 22-32) saved aggressively with no idea about retirement goals, DW & I both came from frugal/LBYM households (thanks Mom & Dads)
age 33-39) saved & invested even more aggressively*, still no idea about retirement goals
*after reading Your Money or Your Life & other books, we concluded there was no danger we could save too much
age 40-51) company I worked for was sold, lost pension & retiree health care. After several promotions and higher income/responsibility - saved even more aggressively & invest a little more conservatively, as much as 70% in our best year! Losing the pension & retiree health care turned out to be a good thing, realized we should rely entirely on ourselves for retirement. Still no real nest egg goal, which ultimately worked to our benefit**...
age 52-57) got more serious about retirement and read up on SWR's, **only to find out we'd already accumulated more than enough to retire (ignorance can be bliss). But since we're pretty risk averse and cautious about the US economy & real returns, we continued to save more than ever and invest albeit a little more conservatively (I was 100% equities until age 51 - not recommended)
age 57) retired. It's been fun (about 1 years so far), but I suspect I'll want a second career before I give up on work altogether.

Financial independence was always our highest priority. Reaching financial freedom as soon as possible and then working, or not was paramount to us. Retiring early wasn't the goal, it just happened that way (I worked well after we reached historical FI). We never bought into instant gratification, "I deserve it", keeping up with the Joneses and the like. YMMV
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Old 11-07-2012, 11:14 AM   #12
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DW and I had the same mindset, and we're glad we started off so aggressive in our mid 20's.

Now that we are 30 with two kids and one more likely on the way soon we're re-evaluating. Providing our kids with a more enjoyable childhood (vacations, sports, early education, etc...) is more important to us than retiring 5-10 years earlier.

At 25 we were setting aside 30%, now we're at about 25%... I wouldn't be surprised if we drop that to 20% by 35

Will still set us up to have the option to ER at 50-55, but our original goal of 40-45 has gone out the window (though we see that as a positive... at least for now as we both enjoy our j*bs)
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Old 11-07-2012, 11:19 AM   #13
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Quote:
Originally Posted by Midpack View Post
(I was 100% equities until age 51 - not recommended)
Great time to get out... assuming you transitioned in approx. 2006
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Old 11-07-2012, 11:21 AM   #14
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Quote:
Originally Posted by EvrClrx311 View Post
Great time to get out... assuming you transitioned in approx. 2006
2005, and of course we didn't get out entirely...

My Asset Allocation History (past 9 years)

And again, I am not recommending anyone follow our path. Hindsight is (indeed) a wonderful thing...
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Old 11-07-2012, 12:50 PM   #15
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This is what we are currently working on. Aggressively saved in 20's and 30's and early 40's. This past year have backed off on my work quite a bit, and hoping in the next year or two DH will be able to quit his regular FT job and do consulting, which he has always wanted to try. He is looking forward to controlling how much work he takes on. Recently he has been pretty overloaded at work.

Quote:
Originally Posted by ESRwannabe View Post
I'm following a similar strategy. I started saving aggressively ten years ago and I'm at the point now that despite my massive savings rate, I'm just barely putting away an equal amount to what I get each year from my investment returns.
This is what we noticed happening over the past few years. It's a great thing! Makes it easier to back off on the intense savings rate and just enjoy life and money a bit more.
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(49, married; DH 53. I am fully retired as of 2015 (well ok, I still work part-time but only because I love the job and have complete freedom to call off if I want to travel with hubby for work), DH hopes to fully retire 2018 when he turns 55 to access 401K penalty-free...although he may decide to do part-time consulting)
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Old 11-07-2012, 01:12 PM   #16
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The shifting to part time does not have to mean the end of accumulating.
I shifted to 60% workload at age 39 when my oldest was born. (Yeah - I am an OLD mom.) I shifted back to 80% workload a few years later. I still contribute maximum to the 401k and make extra principal payments on the mortgage. The LBYM lifestyle, combined with my career being firmly established helped this transition.

My husband, shifted to part time when the economy collapsed a few years ago - as an architect he found that shifting to part time kept him employed... Again, our LBYMs lifestyle was in full force. He managed to negotiate a deal where he's paid per hour (while being a regular employee, not a contractor) - so when crunch times happen, he steps up the hours and gets paid accordingly. When there are lulls in projects, he has smaller paychecks - which makes his bosses happy.

This part time schedule has worked will for us as parents - we have enough time to be in our pre-teen kids business to the point we annoy them. That's a good thing. I have time to coach my sons' FLL robotics team, my husband has time to be the "labor" in our home remodeling projects.
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Old 11-07-2012, 01:21 PM   #17
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This part time schedule has worked will for us as parents - we have enough time to be in our pre-teen kids business to the point we annoy them. That's a good thing. I have time to coach my sons' FLL robotics team, my husband has time to be the "labor" in our home remodeling projects.
This is exactly what I look forward to. We just had our first child (he's 7 months old) and we plan to have another. We really want to be more involved in their lives when they're 10+, rather than working insane work hours. Plus, I'm pretty sure we can support that with LBYM and our specific careers.
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Old 11-07-2012, 03:54 PM   #18
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It's only going to get worse for our kids. Since we were late to the parenting game, Hubby will be retiring when they're in 7th and 5th grade. I'll be retiring 2.5 years later.

All that trouble teens get into in high school? Not so much if we have our way. Their teen years are screwed. Bwa ha ha ha ha.
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Old 11-07-2012, 11:10 PM   #19
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I like the plan. It's something we've thought about too, although in our case it's save like crazy ages 20-45 then consider working at a less insane pace from 45-55.

The thing i like about it is that around age 45 we should be close to mortgage payoff, so earning a bit less won't even hurt our savings too much.

Besides, when you get to the downshift point, you can evaluate your progress and adjust.

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Old 11-08-2012, 12:19 AM   #20
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It's only going to get worse for our kids. Since we were late to the parenting game, Hubby will be retiring when they're in 7th and 5th grade. I'll be retiring 2.5 years later.

All that trouble teens get into in high school? Not so much if we have our way. Their teen years are screwed. Bwa ha ha ha ha.
You are seriously underestimating teen ingenuity for finding and inventing new ways to get in trouble. I was a co-inventor of a 5 day Ripple/Boones Farm/MadDog knock off. Fermenting on Monday, parting on Friday and Saturday.
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