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Old 01-09-2011, 10:42 AM   #21
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"Overall, have you considered calling this a "career change" instead of "ER"? The four interests you mention can all lead to fulfilling (and quite lucrative) income streams if you have the time to devote to them. Maybe the problem you're trying to solve is "different career", perhaps "less career", not "no career". Instead of going ER cold turkey your plan may be much more achievable if you set a target of enough part-time work to bring in $10K/year."
This is a good suggestion, but most things I need a lot of work at. I enjoy writing etc... but I am not good enough yet to actually earn money from it at this level (at least writing the things I enjoy writing about). But maybe I could look into some sort of part time job which I don't detest doing to just bring in some money.

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Now about those finances:
First off, why are you carrying $10K of debt? If it's a low-interest student loan then it may make sense, but only if everything else in your portfolio (including bonds & cash) is earning more than the debt is costing you. In your position, without any guaranteed income from a pension or an annuity, anything over 2% interest is probably a drag on your portfolio. Admittedly a small drag, but if you haven't considered this effect then it's tough to tell what other bigger factors may have been overlooked.
Yeah, I've gone back and forth on this debt issue. I could easily pay back this debt, but it's only 3% interest. Although I am sitting primarily in cash right now, I am looking to reenter the stock market in a serious way and think I would be able to beat this hurdle of 3%. Definitely not something I overlooked. I have weighed the options and I think right now I am happier staying with it.

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Second, have you run your numbers through FIRECalc? Keep in mind that FIRECalc doesn't have enough history to guarantee you a solid success forecast for a 60-year ER, but if FIRECalc has a problem with your portfolio and your expenses then you'll know you're not going to make it. FIRECalc may not be able tell that you'll always succeed, but it will clearly tell you where you're gonna fail.

Third, have you run Monte Carlo calculators to test the effect of a variability of returns on your portfolio? Sure, you might get 7.5%/year, but that doesn't account for volatility. The risk you take to get 7.5% includes a huge slug of volatility that could crash your assets below recovery in one year. Or try a couple years of double-digit inflation. You can read about what Volcker had to do with that in the late 1970s/80s.
I don't really believe in these simulations much... I play with them a little but I don't think historical results is a good indicator of the future.


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Fifth, what are you doing for health insurance? A high-deductible policy and an HSA might work for you if you're not already doing so. You'd also want to be very confident that your family genes don't have a history of anything that would be interpreted as a pre-existing condition. Again, a comprehensive and thoughtful ER plan would have probably mentioned something about this issue in your first post to this thread. You may be way ahead of me here but if you haven't fully considered this then the rest of your plan may be full of Swiss-cheese holes.
I only estimated $200 per month for health insurance/costs. You are right that if I need to do more research into this area and consider options.
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You're essentially following the paths of Greaney & Greenspun, although both started out with a much higher asset level (and perhaps a somewhat older age) than you're contemplating. You might want to review their websites (RetireEarlyHomePage.com and Philip Greenspun's home page). I think Phil continues to bring in part-time income from his photography interests.

Finally, you might want to run your numbers by Jacob Lund Fisker at EarlyRetirementExtreme.com. I say this because you might actually be able to pull it off with the right kind of dividend income. But if you want Jacob and the others on that forum to take you seriously then you're going to have to address the debt.
Thanks I will look into these sites and consider reaching out to them.

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Your comment about "age bias" is interesting. While you're gazing longingly at the older workers with higher pay, they're looking at you and wishing they had a higher probability of greater continuity of employment. There are a number of national networking organizations intended specifically to help those over 40 find a job, any job, after being laid off. So perhaps the human capital works out about the same-- your years of steady work at lower pay contrasted with an older worker's higher pay but greater likelihood of "interruptions". Sometimes that greener grass is just a leaky cesspool.

It's worth considering how you'll feel at age 45, having found a life partner and perhaps contemplating starting a family, about those years of not building the savings/portfolio to enable you to move to a new stage of life. Because if you have nearly two decades of "self-employment" on your resume in your mid-40s, I'd speculate that your prospects as a paid employee will only be minimum wage. Entrepreneurial efforts will have a near-zero chance of attracting startup capital, and you won't have the savings to fund your own startup expenses. It's worth considering how many hours/week at $7.25/hour you'd need to guarantee enough income to support a family.

But if I got this advice at your age from someone of my age then I'd ignore most of it. Not because it's bad advice or coming from a suspect source-- but because I was blissfully ignorant.
I hadn't really thought of worker bias in workers in their 40s. I have heard of age discrimination of people in their 60s.

It sounds like most people think that I could potentially pull this off but that I should try and accumulate more wealth first for safety and for a more comfortable FIRE.

I think this is prudent advice. I will try to continue to hyper-grow my savings in 2011 but it will be difficult with a lower salary. Maybe time for riskier investments.

I may consider doing an MBA or something as a semi-sabbatical (although this will put a bit of a dent on my savings and essentially ensure that I work longer.)
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Old 01-09-2011, 10:46 AM   #22
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I'm not sure why the 7.5% withdrawal rate is being put into question.

I'm saying that I have to earn 9% a year (2.5% inflation) and then take the 7.5% of earnings and that would cover my expenses.

I am not talking about going into the current savings at all.

9% is a high number but I think it's possible to return 9% a year if you pay attention to your finances and take advantage of opportunities.
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Old 01-09-2011, 10:48 AM   #23
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Originally Posted by Bankerwithabrain View Post
I'm not sure why the 7.5% withdrawal rate is being put into question.

I'm saying that I have to earn 9% a year (2.5% inflation) and then take the 7.5% of earnings and that would cover my expenses.

I am not talking about going into the current savings at all.

9% is a high number but I think it's possible to return 9% a year if you pay attention to your finances and take advantage of opportunities.

It works until it does not, and then you are in deep excrement if you are depending on your portfolio for everything. The higher the withdrawal rate, the more risk you have of blowing up over the long term.
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Old 01-09-2011, 10:52 AM   #24
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banker, git yer butt over to FIRECalc.
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Old 01-09-2011, 10:57 AM   #25
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FIREcalc gives me a success rate of 15% if I live until I'm 87! Those aren't terrible odds....

And if only live another 10 years I have a 99.2% chance.....
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Old 01-09-2011, 11:02 AM   #26
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I'm deeply sympathetic to your concerns, as I'm in a very similar situation, only about 5 years older than you - ~$340k, spending about $32k/yr, but could cut it to $25k, and very eager to get off the treadmill of work.

I don't think that either one of us can afford it yet, not without working at all, and possibly not at the jobs we want to take. For me, I can work on boats and enjoy myself, but i don't want to have to work year-round and worry if I don't have a boat for a season. I'm also wedded to a condo due to some worthwhile but restrictive financing (basically a sunsetting grant repayment - if I don't sell, after a certain time I'll never have to pay it back, so I'm attached to making the mortgage rather than downgrading).

The things that I'd look at for you are: the current job, saving $20k/yr - are you reasonably happy at this one? can you stay content for 2-3 years in it? adding $60k and getting 7% on your $340 leaves you with about $480 after 3 years. In 3 years you've dropped your withdrawal rate from 7.4% to 5.3%. If you work even part-time after than in something that you like, I think that you can make it, even if there is a tight year or two in there.

Careers are like a treadmill - once you get off, you really can't get back on without slowing it way down from where you were, and the faster/higher earning you were, the greater the difference.

6 months or a year off might be a great idea, especially if you can justify it to the job that you are coming back to in a way they appreciate - working for a volunteer organization, sailing across the ocean on someone's one-time only invitation, family estate management, long honeymoon, etc. But don't forget that putting off the last 3 years of work that you may need to do won't speed things up, even if it will help you get through them sane.

Other option would be 2 years full time and try to switch to 2 years half-time. If you're saving $20k/year, you can work half-time, live on your $25k/yr budget to practice, and not tap any of your investments. it's good practice on the high-wire while leaving yourself a safety net of income, and letting your investments grow undamaged for another 2 years. After 2 years, they should be (at 7%) growing about $30k/year. That working part-time is buying you a lot of flexibility down the road, and it hurts a lot less coming from full-time than it would coming out of retirement, and will probably pay a lot better.

Congratulations on where you've managed to get to. You're ahead in the race, you don't have to sprint to get a good finishing time, and you can see the final leg, but you're not there yet, and it's worth finishing the race.
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Old 01-09-2011, 11:10 AM   #27
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So, is the possible plan to retire for 10 years and return to the work force broke?

While each person has to determine individual risk tolerance, what % from FireCalc would be reasonable?

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Originally Posted by Bankerwithabrain View Post
FIREcalc gives me a success rate of 15% if I live until I'm 87! Those aren't terrible odds....

And if only live another 10 years I have a 99.2% chance.....
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Old 01-09-2011, 11:17 AM   #28
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I'm not sure why the 7.5% withdrawal rate is being put into question.

I'm saying that I have to earn 9% a year (2.5% inflation) and then take the 7.5% of earnings and that would cover my expenses.

I am not talking about going into the current savings at all.

9% is a high number but I think it's possible to return 9% a year if you pay attention to your finances and take advantage of opportunities.
A lot of people on this board are very conservative investors. I am not particularly risk-averse and I think you CAN get 9% a year if you invest aggressively. It will take a lot of your time to manage your portfolio, by the way. I know it does for me.

Other things in what you shared concern me. The 9% ... well, you can probably do it if you know about investing.

Health care - it appears (don't all scream at once) that in 2014 we will have health insurance of some sort for all. I would wait until then. You never know what will happen to your health and you could become uninsurable.

I have seen prejudice against hiring older workers, especially if you've been out of the job market for a while. There's also a similar issue with young workers. You don't want to hear this, but 27 IS young. You've been in the work force, what, 5 years? That's not a lot of years of experience.

In terms of taking a year off - it sounds great, but I've had unexpected years off and getting hired after that isn't as easy as you might expect. They look suspiciously at anyone who isn't totally driven to work hard. You may be seen as a slacker.

My advice is to keep saving - $20K in a 401K/year should add up to a lot more - and wait for 2014 because of the health care. It's only 3 years.

Could you do some writing and music (do you mean you're a musician?) in your spare time, now that you're working at a job that isn't as time-consuming, so you slowly ease into that? If you hope to make a living at any of your hobbies, that would give you a way to see if it's possible.

I had an odd experience at age 49. I was laid off and decided to travel for a while. Also it was late in the year and that's not a time when people are hiring. So I started a job search in January. I've got an MBA and had interviewed a lot over the years. I was getting a response I NEVER had heard before: something like "you know, this is kind of a stressful job and we're concerned about how you handle that... you seem so relaxed..."

I apparently blew a ton of interviews by being relaxed. Go figure... You will be relaxed too, with sufficient money and a year or two off. I had no idea it would show and/or be an obstacle. Anyhow after 6 months I got a job - I think by then I was desperate and no longer the least bit relaxed... and got lucky. I was starting to run out of large companies to apply to. I had to look at large companies because of health insurance issues - I am a cancer survivor. But the interviewers didn't know that.
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Old 01-09-2011, 11:26 AM   #29
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FIREcalc gives me a success rate of 15% if I live until I'm 87! Those aren't terrible odds...
So how would you describe an 85% chance of failure, then.
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Old 01-09-2011, 01:56 PM   #30
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I don't really believe in these simulations much... I play with them a little but I don't think historical results is a good indicator of the future.
FIRECalc doesn't give a sh!t whether you believe in it or not. It just tells you how you would have done if your ancestors had tried this.

True, you could decide that the future is different than the past. That's what Monte Carlo is for. If you think Monte Carlo's math is based on history then you have not done sufficient research into the tools, let alone their use, to be able to ER with a solid foundation of financial discipline. Confidence, sure, but not fundamental mathematical probabilistic support for your dreams.

Then there's Otar. Listen to what this board's members are telling you, and spend an hour or two out of your busy life to read his advice on planning your future.

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Originally Posted by Bankerwithabrain View Post
FIREcalc gives me a success rate of 15% if I live until I'm 87! Those aren't terrible odds....
And if only live another 10 years I have a 99.2% chance.....
Yeah, but you don't have to believe FIRECalc if you can just wing it.

If you can't handle a little cognitive dissonance from a bunch of strangers on the Internet then you'll have plenty of time to contemplate your own internal dialogue while you're trying to figure out how to achieve those 9% returns every year.

So, good luck with that, and thanks for stopping by...
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Old 01-09-2011, 02:26 PM   #31
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Congratulations. You're hit the sweet spot of your financial life. If you can get 9.5% on your investments and are able to save much of your salary, there's no reason you can't double your assets in 4-5 years. That would give you lots of options - finance a career change, take time off, or retire early at a much lower withdrawal rate.

Leaving now is an option, and you might find a high paying job again in the future when you choose to return, but you may never have this capacity to save and increase your assets. It doesn't have to be now or never. There's nothing you can do at 29 that you can't at 33 - except maybe save most of what you make.
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Old 01-09-2011, 02:43 PM   #32
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I am in a similar position, except about 2 years older than you are... and interestingly enough my only debt is 7.5K in 2% student loans.

There is no way I would do what you are suggesting. You said that a good portion of your money is in cash (as is mine, since I plan on buying a house soon). What if you decided to enter the market and then it took a big drop? There goes everything.

As for the age thing - there is no way you can think if you took 15 years off work and went back that you should be paid the same as another person in their 40s who now has 10x the experience that you do.

Sounds like you just need to take a vacation or a short hiatus and think about finding a career that you would be happier with. I am sure banking is stressful, but I'd be WAY more stressed trying to make 340K anywhere near as long as you're talking.
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Old 01-09-2011, 03:46 PM   #33
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Thanks everyone for the food for thought.

I'm still digesting it all.
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Old 01-09-2011, 06:19 PM   #34
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FIREcalc gives me a success rate of 15% if I live until I'm 87! Those aren't terrible odds....

And if only live another 10 years I have a 99.2% chance.....
So it was a joke after all. Now - Get back to work
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Old 01-10-2011, 08:33 PM   #35
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I'm abit older than you at 35 but have about the same in $ kicking around and house paid off. I would love more than anything to end my work life right now but it's just not going to happen. As others have said, employers are very suspicious of gaps especially in finance type careers where everyone is typically a Type A personality and you simply do not have enough to retire now unless you want to live in a tent.

My plan is to grind it out til 40, take an extended break, then get into something lower paying and more flexible. At that time I'll have 25X expenses and will be working only to cover my needs and letting the nest egg grow. You indicated you can only save 20K per year....I suspect this does not include returns on the 300K+ that you have. Assuming 10% a year return on this (yes, high I know) that is 30K alone so I can't see why you can't sock away 50K a year for 7 years giving you about 750K in your mid 30's.
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Old 01-10-2011, 09:23 PM   #36
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As for as spending more time actively managing money, I've found the more time I spend on it the worse my return gets. Lol. Really tho. I'm not kidding.

But seriously, you're too damn young IMO. I quit at 43 and that was probably too damn young as well. Take some time off to travel or whatever, then get back to work.

You can thank me later. ;-)
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Old 01-10-2011, 10:11 PM   #37
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I'm not sure why the 7.5% withdrawal rate is being put into question.

I'm saying that I have to earn 9% a year (2.5% inflation) and then take the 7.5% of earnings and that would cover my expenses.

I am not talking about going into the current savings at all.

9% is a high number but I think it's possible to return 9% a year if you pay attention to your finances and take advantage of opportunities.
While there will certainly be years when 9% looks easy (like 2009 and 2010), there will also be years when you get it wrong and get a lower return or a loss (like 2010 for many). This happens to even the best of investors. Given that 9% (nominal) leaves you zero margin for error (lower returns, higher expenses), simple maths will tell you that you only need one "bad" year to put you in a position where your nest egg will not provide the financial support you need going forward.

Take a career break now if that's what you need, but expectations that you can FIRE now on what you have look more than a little optimistic to me.
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Old 01-10-2011, 11:17 PM   #38
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I calculated I need about $25,000 a year to live.


Housing $700
Transportation 200
Personal Care 50
Clothing 60
Food 300
Entertainement 100
Health 200
Misc 200
Holidays 300
Total Monthly 2,110

This means I need about a 7.5% return (after inflation) per year.
Cut back a bit and you can maybe do it. One thing in your advantage is you will be in a 0% tax bracket, which helps.

I think you could probably get by if you do all of your own money managment and don't pay any fees. Get an account at a deep discount broker (I use optionshouse) so you can buy 20 or so equities and start writing covered calls on them (pick very stable large caps with cash on the balance sheet...dividend paying is good too). Spend 200K on this and put the other 140K in 5 year CDs. I have calculated you should be able to earn 10% to 20% a year in a flat or rising market with the covered calls, and if you get a downturn you can live off more of the CD money until your stock recovers to a point where you are comfortable writing the calls again.

Worst case you go back to work.
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Old 01-11-2011, 12:56 AM   #39
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Cut back a bit and you can maybe do it. One thing in your advantage is you will be in a 0% tax bracket, which helps.

I think you could probably get by if you do all of your own money managment and don't pay any fees. Get an account at a deep discount broker (I use optionshouse) so you can buy 20 or so equities and start writing covered calls on them (pick very stable large caps with cash on the balance sheet...dividend paying is good too). Spend 200K on this and put the other 140K in 5 year CDs. I have calculated you should be able to earn 10% to 20% a year in a flat or rising market with the covered calls, and if you get a downturn you can live off more of the CD money until your stock recovers to a point where you are comfortable writing the calls again.

Worst Most likely case you go back to work.

Fixed it for you.

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Old 01-11-2011, 04:14 AM   #40
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9% is a high number but I think it's possible to return 9% a year if you pay attention to your finances and take advantage of opportunities.
Well, perhaps. I'd put it closer to 7%, and then you need a lot of luck.

But still, yes, many of us here managed well over 9% in 2010 by being well exposed to stocks. Apparently you're substantially in cash, and I presume that doesn't mean that you took a lot of profits on 12/31/2010. You aren't going to get 9% that way, ever. And you claim to be in corporate finance?

Something does not add up here.
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