Invest it, and walk away?

[BigBangWeary]

If a young couple has $500,000 liquid by 35 (plus a paid off car and emergency fund of a few thousand), wouldn't it be wise to invest the half million in a balanced portfolio and walk away from their high paying/stressful jobs?

I mean, if they are happy to rent, and can work to pay for the cost of living, health care, etc. would you see this as a viable strategy? Assuming some modest savings were still possible?

A real return of 5% over 25 years would mean $1,693,177 at 60. Nothing extravagant with inflation, but if they move to a lower-cost area and continue to work and earn, it seems to make sense.

Of course they could always save more and work longer. And possibly burn out.

What are your thoughts?

 

[MichaelB]

It depends on what they want in life. That, and not the $500k, should drive the choice.

 

[LOL!]

My thoughts are that the small amount of money they have saved up doesn't matter.

They need to find jobs that they love to do instead of the jobs they are doing now. But that is what you wrote: "but if they ... continue to work and earn, it seems to make sense."

 

[pb4uski]

....Of course they could always save more and work longer. And possibly burn out.

What are your thoughts?

+1 with the above. The $500k at such a young age (congratulations by the way) gives them choices that they otherwise would not have.

Depending on the nature of the work and their employment, perhaps they can dial down to part-time. I was able to do that (went from managing to a subject matter specialist) and it was a win-win. The great part is when some stupid BS task came along that I didn't want to do I would sometimes ask the boss "You have 1,000 hours of my time each year, do you really want to spend/waste them like this?" and more often than not he would assign it to someone else.

While you don't say what you do, another choice might be to take a similar position with a not-for-profit that has a mission that you like. Or a less stressful job with a smaller firm.

The thing is that wealth gives you choices and FI gives you more choices.

You can also sketch out your plan on Quicken Lifetime Planner and get an idea of what you need to earn to have the life and retirement you want and that will help you with your decision.

Good luck.

 

[daylatedollarshort]

Sure, do it. You have enough of a cushion you can look for jobs you enjoy, hobby jobs or each work part time in a low cost of living area. Check out the House Hunter International episode on a couple working from home with lap top jobs and living in Cannes for inspiration.

I went back to school mid life and ended up making more per hour working from home than I did as an IT manager sitting in meetings like this all day -

http://www.early-retirement.org/forums/f27/the-only-engineer-at-a-business-meeting-71434.html

In my case we had savings and DH worked full time so I had the luxury of trying out different careers until I found something I was actually good at and enjoyed doing.

Here is a thread from fatwallet that focuses a bit more on the low cost of living area aspect of ER than increasing savings, which tends to be more the focus on this forum:

http://www.fatwallet.com/forums/finance/1357506/

I wouldn't count on 6% real, though.

 

[Chuckanut]

It's all about quality of life. As other have said, don't let the $500,000 drive the decision. Money is a tool to be used to improve quality of life. It is useful even if it only provides peace of mind. One does not go out a build a new house just because on owns a hammer.

Time to explore what kind of life this young couple wants.

 

[haha]

Time to explore what kind of life this young couple wants.

As if they could possibly know at that stage in life.

Maybe one of them is just about to come down with MS. Maybe the wife has become pregnant. Maybe they will decide that a life of poverty, always needing to choose the cheap, will not always appeal to one or another of them? Not everyone succeeds every place. Maybe when they move to a cheap place of the US or some 3rd world place, one of them will wake up some night and wonder, good god, what have I done?

Maybe they will divorce or permanently separate. More than half of couples eventually do.

Ha

 

[daylatedollarshort]

As if they could possibly know at that stage in life.

Maybe one of them is just about to come down with MS. Maybe the wife has become pregnant. Maybe they will decide that a life of poverty, always needing to chose the cheap, will not always appeal to one or another of them? Not everyone succeeds every place. Maybe when they move to a cheap place of the US or some 3rd world place, one of them will wake up some night and wonder, good god, what have I done?

Maybe they will divorce or permanently separate. More than half of couples eventually do.

Ha

BBW isn't talking about checking out of work altogether, just not having high stress / high paying jobs. I think that is a viable lifestyle choice instead of pursuing the "American Dream" of a big house with a huge mortgage in an expensive metro area, and a 60 hour week of work, commute and useless meetings.

In the U.S. the ACA has made two spouses each working part time jobs a viable option.

 

[haha]

BBW isn't talking about checking out of work altogether, just not having high stress / high paying jobs. I think that is a viable lifestyle choice instead of pursuing the "American Dream" of a big house with a huge mortgage in an expensive metro area, and a 60 hour week of work, commute and useless meetings.

Every one has an opinion, none are necessarily right or wrong. And as long as the redistribution theme of recent years keeps going, it may be fine.

However, most research that gets published shows low level jobs as being more stressful than most professional or executive jobs.

If this came down to no or no go advice to OP, you perhaps would say go; I'd say consider this very carefully.

Ha

 

[daylatedollarshort]

Every one has an opinion, none are necessarily right or wrong. And as long as the redistribution theme of recent years keeps going, it may be fine.

However, most research that gets published shows low level jobs as being more stressful than most professional or executive jobs.

If this came down to no or no go advice to OP, you perhaps would say go; I'd say consider this very carefully.

Ha

I am suggesting two part-time or part year professional or self employed jobs, not low level jobs, just low annual hours, as in two people making $50K - $100K+ each with full time jobs, making half as much by each working part time. Or working full time in something enjoyable, like tennis coach or jewelry designer.

I agree that low level jobs can be most stressful because of a lack of control. There is a good Nat Geo Stress documentary on this on Netflix that compares similar elevated stress levels found in UK government workers in low level positions in a rigid, hierarchical working structure to low level baboons kicked around by alpha males in a baboon troop.

 

[nash031]

If a young couple has $500,000 liquid by 35 (plus a paid off car and emergency fund of a few thousand), wouldn't it be wise to invest the half million in a balanced portfolio and walk away from their high paying/stressful jobs?

I mean, if they are happy to rent, and can work to pay for the cost of living, health care, etc. would you see this as a viable strategy? Assuming some modest savings were still possible?

A real return of 5% over 25 years would mean $1,693,177 at 60. Nothing extravagant with inflation, but if they move to a lower-cost area and continue to work and earn, it seems to make sense.

What are your thoughts?

First point: find me something that guarantees 5% real return over the next 25 years and I'll invest right now.

Second: I'm close to this situation, and there's no way I would walk away right now. For one thing, I have a pension in which I become vested in a little over five years. The cost of living where I am precludes surviving on $500k for the rest of my life.

Even if it didn't, at age 35 I would not pull the plug with so little saved. It would be too much stress worrying about market gyrations over the next 5-10 years and wondering if we could make it the next 60 years on that little money.

I'm 36, married, no kids, and off to a good start. That's what I think $500k at 35 is: a good start. So much can change in the next ten years, it's unfathomable for me to think about quitting and living off of our savings, or even part-time work at this point. Kids can happen, even if you don't plan them. Health issues can crop up. Living standards and desires can and probably will change... The list goes on.

 

[RetireAge50]

I'm at the place where I could hang it up and do something low-key part time. But I would have to keep working to later age so am fighting the temptation.

Either way would be good though and not typical American way.

 

[daylatedollarshort]

If a couple each has an $80K job for $160K total household, going half time each is still $80K household, and a good chunk of that second full time income might have been going to taxes, commute and job costs, and life outsourcing (yard work, house cleaners, fast food with no time to cook, etc.).

 

[BigBangWeary]

Thanks for the responses everyone. This is actually a hypothetical based on a discussion I was having with a friend of mine, although I can certainly relate.

I grew up in a lower-income family, and my parents have retired (in Canada mind you) with nowhere near this amount. Of course they live on modest pensions, but I always find it interesting to hear people talk about what a 'small amount' $500,000 is ... or would be for a 35 year old couple.

As an expat, I travel a lot, and get to see dozens of different cultures living, happily mind you, in dozens of different ways. I am not completely in the ERE camp (Thanks for the link daylatedollarshort), but I am also not convinced we need to kill ourselves to reach multiple millions while sacrificing decades in a corporate office (as in this couple's case). This seems to be the primary strategy on this forum, and it may indeed be the 'correct, responsible, sensible' strategy. Maybe. Maybe not.

Keep in mind, that the scenario involved leaving this money invested and untouched, and continuing to work and save modestly over those 25 years. It's not like they would be putting all of their hope on this investment, but surely time is on their side, no? Perhaps Einstein was off the mark ...

 

[Options]

...

I'd say consider this very carefully.

Ha

Just finished reading "The Great Unwinding". Real life stories contained within of people who made what they thought were the best choices at the time during/since the economic meltdown. Some won. Others didn't. All choices contain consequences and secondary,unintended consequences. Consideration of the secondary and unintended consequences of any decision is the hallmark of wisdom.

Ha does an excellent job above of detailing some issues that could change the course of the OP's referenced couple's lives in their future. Allowing half a million to burn a hole in one's pocket can be a costly mistake. Brian Tracy refers to it as "eating your young", whereby you "eat" what you've saved.

It's been said the difference between the middle class and those above is that the minute an individual in the MC gets some extra money, they're always thinking of ways to spend or live off of it. Classes above (or some of you frugal ER folks here), OTOH, never spend when they can rent, never rent when they can borrow, and never borrow when they can get it for free.

 

[daylatedollarshort]

It's been said the difference between the middle class and those above is that the minute an individual in the MC gets some extra money, they're always thinking of ways to spend or live off of it. Classes above (or some of you frugal ER folks here), OTOH, never spend when they can rent, never rent when they can borrow, and never borrow when they can get it for free.

BBW isn't trying to spend it or live off the $500K. Just use it as a cushion to buy less stress / more free time instead of more consumer goods or a big house. He is talking about working and still saving, just scaling back.

He wants to use his money to buy a less stress filled life, and avoid health issues like this -

http://www.pbs.org/programs/killer-stress/

 

[aja8888]

I am suggesting two part-time or part year professional or self employed jobs, not low level jobs, just low annual hours, as in two people making $50K - $100K+ each with full time jobs, making half as much by each working part time. Or working full time in something enjoyable, like tennis coach or jewelry designer.

.

I'm having a hard time understanding where the part time $50 - $100 K, low stress jobs are? Everyone I know that makes that much money is either working full time or has a business with a lot of stress (competition, taxes, insurance, equipment to maintain, travel, etc).

Most professional jobs are full time, for my viewpoint, although I am a consultant and have been for years. My "job" (business) is very lucrative, but it would be sure hard to maintain "part time".

 

[daylatedollarshort]

I'm having a hard time understanding where the part time $50 - $100 K, low stress jobs are? Everyone I know that makes that much money is either working full time or has a business with a lot of stress (competition, taxes, insurance, equipment to maintain, travel, etc).

Most professional jobs are full time, for my viewpoint, although I am a consultant and have been for years. My "job" (business) is very lucrative, but it would be sure hard to maintain "part time".

If you are a consultant, do you have to work all year? We know people that do IT consulting that only work part of the year. There are quite a few posters here who report working part time at white collar jobs.

 

[aja8888]

If you are a consultant, do you have to work all year? We know people that do IT consulting that only work part of the year. There are quite a few posters here who report working part time at white collar jobs.

Yes, I am available all year. If I wasn't, I would lose opportunities and be forgotten about (or replaced by a competitor). Plus, when you eat what you shoot, you have to keep hunting for more game, so to say.

I suppose there are very specialized consultants that have the skill set to pick and choose jobs or be "the only game in town", but those are not the garden variety consultants.

You make it sound so easy for someone to stop what they are doing and just migrate to a high paying part time gig. In real life, it's not that easy.

 

[daylatedollarshort]

Yes, I am available all year. If I wasn't, I would lose opportunities and be forgotten about (or replaced by a competitor). Plus, when you eat what you shoot, you have to keep hunting for more game, so to say.

I suppose there are very specialized consultants that have the skill set to pick and choose jobs or be "the only game in town", but those are not the garden variety consultants.

You make it sound so easy for someone to stop what they are doing and just migrate to a high paying part time gig. In real life, it's not that easy.

But I didn't just stop what I was doing. In my previous posts I wrote about having the luxury of going back to school and having multiple career fails before I found something I could do part time and was actually good at.

Maybe there are not part time opportunities in every field, but we do know people who went back to school for teaching careers, nursing or other health related fields where they could work part time or have part of the year off.

Our kids had a couple of ex-rocket scientist types teaching their public school classes. I never knew exactly why, but they were both great teachers and maybe they found the teaching jobs more rewarding than government work and liked the summers off.

 

[pb4uski]

Yes, I am available all year. If I wasn't, I would lose opportunities and be forgotten about (or replaced by a competitor). Plus, when you eat what you shoot, you have to keep hunting for more game, so to say. ....

In my experience there are lots of white-collar, professional part-time opportunities out there.

I can see where it would be tough being a sole proprietor.

I was in consulting but was a full-time employee and decided to go part-time. All my management needed to do was compare my billing rate to the cost of carrying me and they knew that they were making a lot from my services and a half of my hours was better than none. I did that for more than 5 years.

It might be possible to take on fewer projects (hunt and kill less) and use the time freed up to do what you want to do. In other words, do only 60% or 75% of what you do.

Or perhaps merge with a local competitor and then work for them part-time.

 

[aja8888]

It might be possible to take on fewer projects (hunt and kill less) and use the time freed up to do what you want to do. In other words, do only 60% or 75% of what you do.

I'm looking to do this but find it difficult since the energy industry is so crazy busy these days. Seems like when I find a gig, they want me to stay on and be "available".

As daylatedollarshort pointed out, teaching jobs may lend themselves to fitting part time work, but I have not thought about that. (I don't think part time teachers make much income around here either, but I could be mistaken).

The bottom line about part time work appears to be task related and if you have a skill that matches with a particular project with a finite end, then it could be truly part time.

Another avenue is working for an agency that places part time folks. Here in town there are a few, but those positions usually are long term (6 months+) and may end up ful time (if you are asked). I think it's the nature of the industry around here (Houston).

 

[braumeister]

A real return of 5% over 25 years would mean $1,693,177 at 60. Nothing extravagant with inflation

This may be too obvious to mention, but if the next 25 years sees inflation equal to the last 25 years, then the $1,693,177 will be worth less than $877,000 in today's dollars.

 

[daylatedollarshort]

As daylatedollarshort pointed out, teaching jobs may lend themselves to fitting part time work, but I have not thought about that. (I don't think part time teachers make much income around here either, but I could be mistaken).

I don't know about part-time teacher jobs, but I know several people who changed careers to become teachers, which does give them summers and most other school breaks off and maybe a pension. One of our former co-workers just got a teaching certificate for a career change.

 

[ERhoosier]

Yes, I am available all year. If I wasn't, I would lose opportunities and be forgotten about (or replaced by a competitor). Plus, when you eat what you shoot, you have to keep hunting for more game, so to say.

I suppose there are very specialized consultants that have the skill set to pick and choose jobs or be "the only game in town", but those are not the garden variety consultants.

You make it sound so easy for someone to stop what they are doing and just migrate to a high paying part time gig. In real life, it's not that easy.

That's general impression in my region,too. Congrats to those who have been able to scale back to hi-pay part-time IC. Many who tried to scale back to PT ended up involuntarily scaling back to (near) zero
Most self-employed "part-timers" I know seem to be folks who are trying hard to GROW their business.