So, how did you do it?

[Calgary_Girl]

Hi! This topic has probably been brought up before, but humour me It seems like this site is full of people who retired quite young so I'm interested in your stories. How exactly could you afford to retire in your 30's/40's.....?

I thought hubby and I were doing quite well but obviously not well enough to retire before our 40's (we are 35 and 32; no kids yet; net worth of $700K).

Thanks!

 

[Nords]

- Military careers with COLA pensions and govt-subsidized healthcare
- Dual incomes for 20 years each
- Putting off kids (until our early 30s)
- Saving 25-40% of each paycheck
- Maxing out the tax-deferred investments
- Investing in low-expense mutual funds (index or with low turnover)
- Living a low-consumption lifestyle
- Buying quality used or cheap new
- Learning how to do our own home repairs & improvements
- Learning how to negotiate the price of everything
- Hobbies: Garage sales, pawnshops, classified ads, & realtor's open houses (instead of shopping malls)
- Eating right, exercising, countering stress
- Tracking expenses & knowing your goal

The pension & healthcare are a big help but they're not necessarily the most important factors. A military retiree has been researching military retirees for his PhD thesis and he's learning that over 85% of them go right back into the civilian workforce. Ironically this seems to be independent of the size of the pension.

I know that there are a lot more ERs without 20-year military careers. So in addition to the military's clear drawbacks, ER might be achievable just by doing the rest of the list.

 

[wzd]

Double that over the next 10 years, and get a downsizing/early retire package and you have my story. Sounds like your on a decent track. And you could retire now, with the right lifestyle, so I would say you are working to improve your retirement lifestyle. I suggest that you set a target and check it every few years, so you don't get stuck in the few more years, a little better retirement trap.

Retiring in your 30's takes some combination of luck, self discipline, and self deprivation.

 

[wabmester]

Pure, dumb, luck.

Lucky to nab some good chromosomes (and a few wacky ones for balance). Lucky to be born in a country with boundless opportunities. Lucky to hit puberty just as the microprocessor was invented. Lucky to get my first job just as the longest bull market in history was starting. Lucky to buy a house in one of the hottest markets in the country. Lucky to get sick of my job and start a little software business just as some French guy invented HTTP. Lucky to sell the business just as valuations got crazy.

And, now, I'm hoping I'll be lucky enough to hold onto most of it in an era where our luck might be running out.

 

[retire@40]

I thought hubby and I were doing quite well but obviously not well enough to retire before our 40's (we are 35 and 32; no kids yet; net worth of $700K).

I don't know what your yearly expenses are, but you may be closer than you think. If you did not include your home in your net worth, you can semi-retire today with a yearly indexed distribution of about $28K from your investments. Or, you can just cut down your work hours so that you are earning just enough to pay your bills. Let that $700K grow until you can live on a 4% distribution and completely quit working at that point.

I am in a similar situation to yours except I have one child and my wife and I are semi-retired now meaning we only work part-time in our own business. 99% of the time it's not even work for us anymore since our stress level is way down and we have time for other things we want to do.

 

[Cut-Throat]

Lucky to get my first job just as the longest bull market in history was starting.

Wab,

Actually not! - If you would have gotten your first job when the Bear market was starting, you could have purchased all those investments cheaper. - That is, if you got to keep your job.

 

[John Galt]

Dumped my high maintenance non-working spouse, and found a low maintenance hard working woman

Sold the Cadillacs and the second home, and dropped out of the country club.
Moved out of the high rent district and into a small house in the country. Cancelled the cable, the gym,
the cell phone, all magazines and newspapers.

Sold anything which was not needed or not being used.

Dismantled my small manufacturing company and sold it off in pieces.

Note that I did not list making a bunch of money, nor
any early ER planning. I did make a bunch of money but
we spent most of it. The real planning did not start until
the decision to ER was already made. I could be the poster child for what not to do

JG

 

[FlowGirl]

The pension & healthcare are a big help but they're not necessarily the most important factors.  A military retiree has been researching military retirees for his PhD thesis and he's learning that over 85% of them go right back into the civilian workforce.  Ironically this seems to be independent of the size of the pension.

Fascinating work - especially the part about it being independent of the size of the pension. I'm starting to conclude that attitudes about early retirement may be self-fulfilling.

Most of our military friends (all officers with decent pay) seem to think that the military's COLA adjusted pension w/medical offered after 20 years is such a pittance that using it as the basis of an early retirement is not even worth considering. Thus, having concluded that work after "retirement" is a financial necessity they make no effort to maximize their current savings. This puts them in the position of having to work immediately after retirement - some to the point where they don't even take a vacation before starting civillian work after finishing their military career.

As for us, we're savings as much as we can without squeezing our current lifestyle too severely. My husband loves his job but has already told me it will be the last job he ever has. He has no plans to work ever again after finishing his military careeer. So we either make ER by our deadline, or its up to me to sprint to the finish line. Totally fair, and a much healthier attitude I think than planning on becoming an insurance salesman or consultant after hanging up the uniform.

 

[haha]

He has no plans to work ever again after finishing his military careeer.  So we either make ER by our deadline, or its up to me to sprint to the finish line.  Totally fair, and a much healthier attitude I think than planning on becoming an insurance salesman or consultant after hanging up the uniform.

Nice attitude, Flowgirl. One of my friends about 15 years ago was a former bomber pilot, Lt. Colonel. His wife was used to the good life. He went to work for Mutual of Omaha. The disgust he felt showed in his face, his voice and his step. He finally gave up, got divorced and started work as a home repair contractor.

My father-in-law retired full colonel, got a Phd, worked a long time teaching, and now at 90 he still considers himself to be working.

With him, being on top is very important. I don't think he could stand the loss of status that he would perceive as being a necessary part of retirement. Got hooked on being called Colonel, and later, Professor. Cleary by now, money can't be an issue.

As they say, different strokes for different folks.

Mikey

 

[haha]

... but humour me  

Do Canadians spell "honour" also? In general, do you follow British tradition in spelling?

Mikey

 

[ESRBob]

Pure, dumb, luck.

Lucky to nab some good chromosomes (and a few wacky ones for balance).   Lucky to be born in a country with boundless opportunities.   Lucky to hit puberty just as the microprocessor was invented.   Lucky to get my first job just as the longest bull market in history was starting.   Lucky to buy a house in one of the hottest markets in the country.   Lucky to get sick of my job and start a little software business just as some French guy invented HTTP.   Lucky to sell the business just as valuations got crazy.

I love Wab's 'attitude of gratitude' -- hey after all we're all incredibly lucky just to be here and alive!  But I suspect he's being a bit modest about some of the things he did that could help an aspiring early retiree.    You do have choices and like catching fish, you can put yourself in a place where luck is likely to show up.

My own story is similar to Wab's, but I do remember consciously thinking about ER since reading Terhorst in 1989 (ER'd at age 42 in 2001), and heeding his advice about taking more risk investing in private equity as a way to hasten a bigger payoff.  In my corporate jobs,  I consciously took more risk by transferring into sales where there was a higher payout, but more need to bust my tail to make commissions.  In my investing, I made a point of taking risk, investing in startups, and learning about things like offshore thai and malaysian mutual funds back in the 80s.

Later on I rode the dotcom boom, but my payout was because I was there early (in 1994) looking for it, and then because I had a plan (Thank you Terhorst, again), We  knew how much we needed to have in the nestegg, and when we got there,  sold without fear or second guessing (things went up for a good six months after the last sale, but I never regretted it because we'd made our number.)

So if you were trying to get to ER today, there is no substitute for luck, but you can be luck's assistant, too.  How would I help luck find me? Lots of possibilities:  Get into higher risk, higher reward work situations, get an overseas transfer, sign up for Chinese lessons, (I did Japanese lessons in the 80's, times change), invest in a friend's offshoring company, learn about med-tech or nano-tech, develop a smart saving and investing discipline, figure out a personal philosophy of integrity and diligence and gratitude that helps people with opportunities see you as someone they trust and want to invest in or place responsibility in.

Do all that, and luck will still be essential, but maybe you can tip the odds in your favor, and while you're waiting around for luck to find you, it gives you something you can 'do' to feel proactive!

ESRBob

 

[Marshac]

- Saving 25-40% of each paycheck
 

net or gross?

 

[Nords]

Mostly net!

Net or gross?

For most of our careers, our only withholding was fed/state taxes and SS/Medicare. After we had a kid we added another $40-$50/month in medical/dental deductions. Back then the TSP wasn't open to the military.

So the savings rate was out of the net, but the net was pretty close to the gross.

Another way to think of it was living on O-4 paychecks with O-1 spending habits. And most of my troops drove far better cars than I ever did.

 

[Hyperborea]

learn about med-tech or nano-tech

Proteomics is where the big money may very well be for the next 10-20 years (maybe longer). Now that the human genome has been "decoded" we need to figure out what it means. That will require taking the codings and turning them into proteins and figuring out how they fold and whole lot more. If you can figure out the general protein folding problem (or even a chunk of it) then there is big money from the drug companies. There are a number of companies in the Bay Area doing work in this area (it's more than just the folding problem) and I have a friend from grad school at one of them. It requires lots of biology or some biology and lots of computer science.

Do all that, and luck will still be essential, but maybe you can tip the odds in your favor, and while you're waiting around for luck to find you, it gives you something you can 'do' to feel proactive!

You can work on tipping the "luck" in your favour but don't count on it - keep up the hard steady slogging.

 

[wabmester]

You can work on tipping the "luck" in your favour but don't count on it - keep up the hard steady slogging.

Well, some of my costliest mistakes were from erring on the side of caution.    I underestimated several fortuitous opportunites that were well within my grasp -- one would have certainly made a 2x difference in my wealth, another probably 50x.   And there was even one in which my top-of-the-head risk/reward calculation was off by a billion dollars or so, but I don't get too excited by all of the alternative universes that I extinguished by choosing one path over another.   I'm happy with the way things turned out.

I'm not sure I could have made it by pure slogging, though.   My approach was to slog until I had a sufficient cushion to take risk, and then exit when the reward was sufficient.   I left plenty on the table with no regrets, but I certainly would have regretted never taking risks.

 

[Calgary_Girl]

Do Canadians spell "honour" also? In general, do you follow British tradition in spelling?

Mikey

Yup! "Honour, colour, neighbour, etc. :

Thanks for everyone's replies. Keep 'em coming since I want to be like all of you when I grow up! Yes, the house is included in the networth....we do plan to downsize one day after the kids (who aren't even here yet ) fly the coup! Luckily, we have no debt, not even a mortgage, so we manage to stash a good chunk away every month in our retirement plans and in after-tax investments.

 

[Hyperborea]

Well, some of my costliest mistakes were from erring on the side of caution.    I underestimated several fortuitous opportunites that were well within my grasp -- one would have certainly made a 2x difference in my wealth, another probably 50x.

It's sometimes difficult to tell exactly what some faceless other on the other side of the message board means. So, what do people mean by taking more risk? Yes, you must take some risk to get any reward but how much do they mean when they say "take more risk"? I certainly hope that they're not saying to put the life savings of a 60 year old down on a single number on the roulette wheel. If any are posting here who've done that (or similar) successfully there are then likely to be many more who've done it and lost - none of those are posting here.

I'm not sure I could have made it by pure slogging, though.

I'm pretty sure that I can but even with it there are risks - market returns, housing market, job situation, etc. I've taken my share of risks - worked at a startup back home, moved to another country, left my reasonably secure job for a smaller riskier company, etc. None of them have payed out big. I've gotten some gains from them but no big score. The experiences from doing them have given me skills that have made me more money through employment but that's just increasing my gains from slogging. I've got some friends who've won (at various levels of "won") the stock option lottery but no such luck for me.

I left plenty on the table with no regrets, but I certainly would have regretted never taking risks.

There's a wide gap between "never taking risks" and "putting it all on red". We may be pretty close to the same point somewhere in the middle but describing it from different ends.

 

[ESRBob]

When I talk about taking more risks, it is mostly about getting oneself out of a comfort zone and being more proactive, creative and adventurous about how to make money.  I did 'invest in myself' in terms of self-funding startups, at least initially,  but these were not huge bet-the-farm numbers, though they were big enough to get my attention very focussed at the time.

So I'm not advocating 'putting it all on red' or worse, 'putting it all on number 19', but you may well need to chuck in a safe job and salary at some point to roll the dice on a new opportunity, or eat into your savings for living expenses while you go out and earn zero for awhile in a startup.

My experience hiring in my startups was that we could either get brand new people straight out of college with essentially nothing to lose, or people who had achieved a certain financial security and were in a position to take risks.  In between, there were many people who were living paycheck to paycheck and simply couldn't  think about joining us.  In the first venture, that cost them big time.  In the second, they came out ahead not joining us!  So it is always a roll of the dice...  

ESRBob

 

[wabmester]

So, what do people mean by taking more risk?

Well, people make risk/reward evaluations every day. Some are no brainers, like "this roulette bet is very unlikely to pay off in the short-term, and almost certainly won't pay off in the long-term." Others are tougher calls. When I was 20-something, I had a couple of job offers. One was from a local company that paid a pretty good salary. The other was from an out-of-state company that paid a lower salary, but lots of stock options. I mentally assigned the options a value of zero because I had no way to value them, and I took the local job. The rejected offer was from Microsoft in 1987. Whoops.

I made plenty of similar mistakes along the way, choosing the predictable upside and limited downside over unknown, but potentially large upside. Once in a while, you need to make a bet that you think has reasonable odds of paying off even if you can't calculate those odds, and resist taking the sure thing.

 

[John Galt]

Hey Mikey, noticed your "being on top/loss of status"
comment. I understand the possible angst involved
as I was the "Top Dog" for many years. It's all in your point of view.
I used to be a "Captain of Industry" but I'm still
Captain of my Destiny, sometime poet, philosopher,
pontificator, and all around good guy. That's enough status for me

JG

 

[Jarhead*]

It's sometimes difficult to tell exactly what some faceless other on the other side of the message board means.  So, what do people mean by taking more risk?  Yes, you must take some risk to get any reward but how much do they mean when they say "take more risk"?  I certainly hope that they're not saying to put the life savings of a 60 year old down on a single number on the roulette wheel.  If any are posting here who've done that (or similar) successfully there are then likely to be many more who've done it and lost - none of those are posting here.


Hyperborea:
Totally agree with you, and for young posters that are aspiring to retire early someday, very good advice. My personal opinion is that competance on your job and whoever you happen to be responsible to, (clients, corp. etc.) will generally make both parties a winner.
Also wanted to take a minute to clear the air a little on comments that we both made.
First off, I'm neither religeous, or a zealot. I will admit to having a little bit of zeal when it comes to a 3 llb. trout taken with light tackle on a feeder stream.
Secondly, my comments about Terrohists retireing early and hauling -ss were related to the fact that it was a no brainer to them because they had no children, and no one else to be responsible for. (Much easier for them).
Lastly, my comments to you about your remarks about the U. S. in your recent posts, had nothing to do with your right to do so, mainly I just felt that it was counter-productive to do so. (My old school training).
In any case, I have found most of your postings to be very helpful, and from a value added perspective, I hope you will continue to post on this board.
Regards, Jarhead

 

[Nords]

The other was from an out-of-state company that paid a lower salary, but lots of stock options.   I mentally assigned the options a value of zero because I had no way to value them, and I took the local job.    The rejected offer was from Microsoft in 1987.   Whoops.

Oh, I don't think you should be so hard on yourself, Wab.

You valued the options at zero, but if you factor in the psychological/emotional/mental costs of having to co-exist with Bill Gates (and I didn't say "peacefully") then those options might still be underwater. I noticed there aren't too many Microsoft Millionaires still showing up at One Microsoft Way.

I've passed up a few glorious opportunities myself, and they would have paid off handsomely in terms of career & net worth-- but I'm even happier that I escaped paying the "collateral costs".

 

[Cut-Throat]

To answer the original question which I assume is the Financial aspect of how we did it. I still feel that we (my wife and I ) have not done it yet, because she is still working. She probably will for about 5 years or so. She has some stock options and purchase plans that are enticing her to stay. Also she likes her job and is not burned out like I was. Maybe because she is 8 years my junior and she has expensive tastes.

What permitted us to live on 1 income and still stash 30% of it was basically get out of debt and LBYM for around 25 years and save 30% or more in Tax deferred plans like 401K and IRAs. And Invest. Watch the monthly bills especially (they never end). Pay cash for everything.

One of the better moves we made is to live in an apartment for 12 years from the mid-80's to the late 90's and poured all of our Savings into the Stock Market. - All of our friends thought we were nuts by throwing away all of our money on rent. Real estate prices in our area were flat for most of that time period. We did buy a place much nicer than these friends in 1998. They still have a mortgage and we don't.

 

[Hyperborea]

In any case, I have found most of your postings to be very helpful, and from a value added perspective, I hope you will continue to post on this board.
Regards, Jarhead

Thanks, it's good to have some of that whole mess cleared up. I don't expect to agree with everyone that posts nor do I expect everyone to agree with me but only to respect my right to say it - if they do want to disagree with me then keep to the issues.

I'm not planning to go anywhere - at least not for the next 6-8 years until I FIRE and become a PT (unless lightning strikes and I hit the stock option lottery )

 

[Hyperborea]

The rejected offer was from Microsoft in 1987. Whoops.

The problem is that you don't know that it will turn out like it did. What if it was the late 80's equivalent of WebVan or Pets.com? Or even if it was a decent company that hasn't gone bust but whose stock performance has been crappy over the last n years (where n is usually the length of time that you've been employed by them) such as say Cisco, Nortel, or Sun?

As ESRBob pointed out the largest groups of recruits to a startup are the youngsters with nothing to lose and the oldsters with enough cushion behind them. I did the startup path when I was young and had nothing to lose (twice actually) and I lost or only got a small amount that nowhere near compensated me for the 80 hour weeks. I'm financially able to weather it again now but why would I? I'm 6-8 years from retirement in my mid-40's using reasonably conservative numbers.

If I go to a startup what are the costs - probably 1.5x my regular working hours and more during the crunch; probably reduced pay (and that reduction will come directly from the amount that I save/invest); and higher risks of being unemployed and not bringing in an income. What do I stand to gain - a chance at more total income. Will the total expected income (the sum of all the possible total incomes - salary + stock - multiplied by the odds of the outcome) be higher than my current salary + benefits (stock options, ESPP, etc.)? Or are people focusing only on the small percentage of good outcomes? That still doesn't take into account the damage to my health and family relationships from the constant long hours. The last time I worked at a startup I burned out bad.

So, for a a potential FIREee it might make sense to try it at the start of the career but maybe not at the end. How high would the payoff have to be and how likely to make me delay FIRE by 2-3 years? If the "high risk" path got me there at the same time as the "low risk" path and only had an extra $100K to show for it and was badly burned out would that be worth it?