INTRO: Retired at 40, been at it for 6 years

[kevin92610]

I spent 8 years in the Navy, 9 years in Corporate America. Struck it big with an IPO and retired just as the dot-com era came crashing down. Lost a lot of money in the meltdown but kept enough to exit. I have 3 kids and I looked at it as my opportunity to be involved in their lives for the next 10 years...

Financial.
I have set up a financial portfolio that allocates my assets as follows:

50% Conservative income generation. REITs, Munis, Oil/Gas... essentially looking for 4% + annual dividends after taxes. This generates my income of $10K/mo, which is my "paycheck", while not reducing the primary capital.

50% Growth Fund: Using a broker, I invest in Blue Chip stocks and ride them for the long term. Biggest holding is Berkshire Class B. Bit more risk in this portfolio but I use this as my long-term inflation hedge. I ride the market up and down and just don't worry about it.

I do not carry any long-term debt and my house is paid off. Established a Trust, and set up a umbrella policy in case some SOB decides to sue me and a last-to-die insurance policy to cover the estate taxes so that what I have left goes to my kids and not the government.

My motivation for retirement was very simple: I have 10 years to be really involved in my kids lives... I can go back to work anytime

What have I been doing for the last 6 years:

Most of my time is spent being what I would call a professional volunteer. I have donated my time an money to my kids schools. Surprisingly none of my kids have resented my involvement in their school lives and I have not had to miss a single sporting event of theirs for the last 6 years! For me this has been priceless!

Challenges of being retired:

- Finding enough to do. The volunteer thing is great but when you are trying to make sure you are available to your kids I find it limits my how much time I am willing to commit to volunteering, which in turn leads to some boring down time.

- The "So what do you do?" question... I used to get creative with this one, now I pretty much just hit people between the eyes with a 2x4 and tell them I am retired and then just deal with the awkward stares.

Where am I now... well my 10 year plan only has 4 years left so now I am trying to figure out what to do next. I don't see myself being involved in the schools once my kids are gone so I am tossing around ideas of what sort of business I would like to do. I haven't found the right idea yet but I do know that I would like it to be some sort of small mom/pop business that I can stand up in my community.

I think that about sums me up.

Regards, Kevin

 

[jclarksnakes]

Kevin,
....You know some people hate the questions about why a young person is not working. I actually think you do many people a favor telling them you are retired. It may get at least a few of them to thinking about saving and investing so that perhaps THEY can retire someday. Good on you for your answer to their questions AND especially for what you are doing for your kids.
Jeff

 

[EagleEye]

Hi Kevin. Thank you for introducing yourself and sharing your situation. You have an interesting story. I hope you stick around and keep posting. May I ask you a few questions/make a few observations?

- What did you do in the corporate world for 9 years? From your description, I assume it was in the dotcom/tech world, but it is unclear. This is relevant to what you may or may not be able to do after a 10-year hiatus.

- If you wouldn't mind sharing: (i) how much was enough in your estimation to make the jump given that you are supporting a family of 3 kids (and a spouse?)? and (ii) what would have been the absolute floor beneath which you would not have been comfortable making the jump?

- Seems to me the hardest thing about being out of the work force for a former military/corporate guy would be the feeling that you are not "keeping up" with your peers, i.e., you have to hear about how much they are raking in, their promotions, etc. Obviously, you need to live your own life and not let it be directed by a need to compete with others, but in my experience, this is easy to say and hard to do.

- About going back to work: maybe I am being naive, but if I had 10 years off, I would use that time to try to figure out the One Thing to which I would really want do dedicate the remainder of my productive life. This is really hard, if not impossible, to figure out when one is immersed in the workaday world, but as a retiree, you can focus all of your mental energy in cracking this issue. Maybe it is not feasible, but it seems more exciting than just going back to work at some business that has no significance or meaning for you as a person.

 

[kevin92610]

Eagle Eye, Good Questions. So... here you go.

I was a marketing type in charge of a Business Unit for a Semi-conductor manufacturer. My core competency was as a project manager, a skill I developed in the military. So I looked where the money was and headed for the tech industry of digital video/data. At the time I made my "big jump" to a start-up company I was working a 9-5 job as a billable employee, had 3 young kids, a mortgage, $75K in savings and lived paycheck to paycheck.

I actually started one company from scratch, raised the venture capital, brought in a CEO, put together the business plan, etc .... but that venture rapidly crashed and burned. Then I got an opportunity to join another start-up company in Calif. Decided I was never going to get the big reward if I didn't take the big risk, so we jumped. Moved to Calif, with $25K in debt on a house I no longer owned and lots of equity that was worth nothing at the time.

As we got closer to our IPO, I think I told anyone that would listen that all I needed was $1.2M and I was out of there. Day of the IPO came, my net worth broke $1M and I had to stare reality in the face. As I started looking at the numbers and how young I was, I realized $1.2M wasn't going to do it.

I held on for a few years and accumulated about $7M. Then as the dot-com meltdown occurred, I exited. figured I needed about $10K/month (after taxes) to live on comfortably, since I had been living on a salary of 90K/yr. So I conservatively invested $3M with a target of 4% after tax return for living expenses. For the last 6 years that has pretty much worked but it does not cover, family vacations, major home improvements or college education. With the remainder of the money I invested for growth as my inflation hedge. Knowing what I know now...what would be the bare minimum I would feel I had to have to walk away... $5M.

As for walking away from the competitive tech industry... You are absolutely right, for most, it is extremely hard, if not impossible to do. I am the only one from my company of 2000 that I know actually did it. However, I never was in it for anything but the money. My family means everything to me and I have never looked back... and I don't even try to keep up with my peers.

As for going back to work and figuring out what I want to do next... you are absolutely right, I have spent the last 6 years thinking about exactly that but only started getting serious in the last year as I start to see the light at the end of the tunnel... When I sit back and look at my options objectively, I don't know that I am qualified to go back to work in the tech industry... do I have the ability, sure, I think I do, but is someone going to want to hire me after 10 years out of the industry?? I sure wouldn't!

No, I have found other interests, Photography and fitness and I am looking at becoming an Angel investor to partner with someone in these industries to start up a small company... I don't need to change the world anymore, I just want to do something I enjoy once my kids are out of the house.

Got a little long winded but I hope this addresses some of your questions, if you or others have any other questions, feel free to ask.

 

[EagleEye]

Wow, Kevin. You have had one interesting life so far. I am genuinely impressed. I had a few reactions, in no particular order:

- I am impressed by your willingness to take risks. Everyone has heard stories in the media about people who "hit the jackpot" in the dotcom boom. But what you don't hear about is the big risk that many of these people took. Joining a start-up with little or no money in the bank -- doing this AFTER your first start-up failed AND with kids in tow -- that is some big risk taking. I am glad it paid off for you. I would guess that if your IPO had been 12 months later, the outcome might have been different.

In any event, I am ashamed to say that I don't know I could have done what you did. I am a pathetic risk-averse lawyer and I only wish there were some way for me to become more willing to jump into opportunities where there is some risk. If you have any suggestions, I am all ears.

-- As far as the $5M minimum, that will seem excessive to many people here. The vast majority of households will not accumulate even $1M in liquid assets even with multiple wage earners and even over two working lifetimes, so $5M may seem a lot for a floor. But if you need something near 100K each year, and if want to preserve the corpus for distribution to your heirs, and if you have to make it last for 50 years or so, and if you want to have some cushioning against contingencies, then $5M may not be so out of line.

What I would be curious to know (given that you have spent time and effort thinking this through) is what your minimum would be if it was just you (i.e., no kids or significant other) and if you did not intend to leave anything to heirs. I would guess you will say $3M.

- Finally, I really want to thank you for your service to the country in the Navy. I spent 10 hours last week watching every installment of the PBS documentary "Carrier," which chronicled a 6-month deployment of the carrier Nimitz. What an amazing group of people run those ships! I wonder if it would be correct to say that your experiences there prepared you either for work with semi-conductors specifically and/or more generally to become the goal-oriented, risk-taker who ultimately succeeded the corporate world.

Thanks again for sharing! It is great to have you here.

 

[Rambler]

Kevin - Congrats on where you are so far. I'm a little behind you, targeting about 48+/-, and WAS targeting 5m. Now it looks like I'll have done about the best I can to get out with 4m. I was wondering how you came to the 5M figure, with a 120k cashflow need. 5M x the standard 4% is 200k. I figure that with 4m, I can use a draw of 3% and still be at 120k which is also my target pretax cashflow need. Would I like to have the extra 1M...YES. It would make me much more comfortable, but I would certainly hope I wouldn't need it.

BTW, I am thinking I will be pulling the ripcord around 48 regardless...don't think I can take this much longer than that.

Thoughts?

Thanks

R

 

[kevin92610]

Eagle Eye: actually, the dot-com era helped with the excessive stock valuations but unlike most the company I worked for actually made money. My business unit alone brought in $300M in my last year there. We also had went public a few years before the bust. Smartest thing I did was dollar cost average on the backside...meaning I sold a certain percent of my stock every quarter regardless of the price. Felt like a real idiot as the stock kept spiraling upward but when the crash happened I felt vindicated.

Suggestions... my perspective is biased, but I am a firm believer in equity. you mention that you are a lawyer... Checkout a book called he "middle class millionaire" there is an approach discussed in there that was used during the dot-com era and is actually making a comeback for lawyers... set aside a certain amount of your legal business to be done for equity instead of cash for start-ups. The lawyers that worked on behalf of our company did this and probably ended up with some of the highest billing rates in the country when the cashed in.

My basis for the $5M is just based on how i have lived since retirement... I enjoy donating to military and educational institutions, I also have 3 college educations to pay for and I am taking extravagant vacations with my kids (I want great memories).

If my kids were gone by the time I retired... you are correct, my answer would have been $3M.

As for my military experience. you are correct, it was the bedrock of my success. It taught me the right way to be a leader. For me that meant, supporting my people... no matter what the cost because it was the right thing to do. Not all military officers learn that lesson, but I was lucky enough to have a Sr. Chief for a father and I actually listened to him.

Regards, Kevin

 

[kevin92610]

Rambler,

I am not the most frugal person in the world and I do like the xtra cushion. Depending on what your status is I would guess you probably can do quite well on $4M. You don't mention kids, spouse, etc... Do you have a mortgage? or is your home paid off.

I will say that early retirement is not the easiest thing in the world for a guy. The social network is a lot harder for us to establish. I spent the first 5 years of my retirement in the same area I had been working so I had lots of friends in the area. Now that I have moved to a new area and am starting all over... it is a very very slow process meeting people. As a result I end up with some really boring days.

I think that is part of what has kicked me in gear to try and figure out a a small neighborhood business I can start up that will allow me to get involved in my community and meet people.

If you don't mind sharing a bit more detail on your personal situation, I would be happy to give you my two cents worth... From what I have seen on this board over the last few days I would say the more detail you are willing to share the better your answers will be.

Personally, I am just tickled pink to have found this forum...

regards, kevin

 

[plex]

Hey, very interesting story, it is rare to see someone from one a tech startup hanging around. I was wondering if you knew of any patent attorneys who worked at your former company, or some other company you knew of, and how it worked out for them. I have heard whisperings of it being done, but not really seen all that much information about how it actually works out or if it is feasible.

 

[kevin92610]

PLEX, unfortunately no. The attorneys I knew were litigators, one actually went on to become our General Counsel after we went public, did extremely well (8 figures at least) and became a member of our board of directors. Several of his jr associates also did extremely well and eventually came on board as employees to get larger equity stakes.

regards, Kevin

 

[Nords]

Not all military officers learn that lesson, but I was lucky enough to have a Sr. Chief for a father and I actually listened to him.

I didn't know that there was an option to not listen to a Senior Chief, whether you were related to them or not...

 

[Rambler]

Rambler,

If you don't mind sharing a bit more detail on your personal situation, I would be happy to give you my two cents worth... From what I have seen on this board over the last few days I would say the more detail you are willing to share the better your answers will be.

Personally, I am just tickled pink to have found this forum...

regards, kevin

Married, two kids, DS has flown the coop but will be entering college in the fall or perhaps winter, DD just finishing junior year in HS. I live in Asia on expat assignment.

About 2.7M in assets held for retirement (of which 400k is estimated after-tax proceeds of a home that we will be selling after we return). Also in that amount is 350k in tax free MM funds, 1.2m in a variety of mutual funds (large cap value, large cap growth, mid cap, small cap, international, and emerging markets), 160k in a variety of stocks, about 100k in checking accounts here and there, about 300k in 401k and non-qual plans at megacorp, almost 200k in the current market value of Megacorp options, plus a few odds and ends here (sorry I can't say the current city....its a big one in Asia).

Home to be sold is in central valley or northern CA, and will be sold two years after we return to the US. We have a new home built a couple years ago on two acres in the Central Valley, some people would call it a McMansion, that is also paid for. We have no debt whatsoever, CC bill is paid in full monthly.

I am estimating after tax expenses for RE in today's dollars at 86.4k, 12k pretax, pre-charitable contribution. It is really hard to figure that out because: 1) I don't live there right now, 2) I don't know how much health insurance will cost. I do know that prop tax and prop insurance will set me back a little more than 12k per year.

Slowly but surely I am trying to get to about 4m, with a 60/40 or 65/35 allocation of stocks/(munis, CDs, MM, and short term cash). Hoping to achieve average total return around 6.5%, and trying to engineer it so that the cash thrown off (divvies and interest) will be approx 3%. Hoping to engineer the tax situation so that effective tax rate is about 10% +/-. That gives me another 10% for charitable donations.

A key driver is a windfall I am guaranteed to receive if I am still in megacorp at year end (750k after tax). Who knows what is after that, but you may have seen from some other threads that I would like to go after DD graduates, perhaps a year to a year and a half beyond that would be OK, but probably not any longer than that.

Comments?

R

 

[kevin92610]

Rambler, looks like a pretty reasonable plan. the only real unknowns would be college expenses, actual investment returns and what you can get for your home sale (just left CA a year ago and I understand prices have dropped by as much as 20% in many areas).

My experience... 6.5% is not an unreasonable overall return in up markets... times like now...not so much. However, in good markets I have been able to get 5-6%, after tax on the income side of my account by being just a bit more adventurous and including REITs and Gas/Oil Trusts as they cycle. REITs in particular can generate some great dividends as well as capital appreciation but like most things, they cycle and you have to be able to walk away from them when they start cutting dividends.

If you can live to a budget and sock away excess earnings in good years, you should be able to live with the difference in down markets.

I had a friend in the finance world that did pretty much what you are doing. Worked as a wall-street banker in NY for several years. Went to Australia for a few years, bankrolled some big end of year bonuses, paid off his debts and retired. He also had 2 kids (one a college freshman and another a Jr in HS). He has been retired for about 4 yrs now. Has a modest paying job, keeping the books for his church and has never looked back on the wall-street banking life.

Best of luck, seems like a pretty decent plan.... look forward to seeing you on the other side. I can't say I have regretted my decision for a moment.

Regards, Kevin

 

[Rambler]

Thanks Kevin. I'm going to have to look into REITs.

BTW. which state to you go to? Were you able to get health easily enough? Individual or some kind of group plan? What does it set you back?

We may sell the McMansion sometime in the future, hoping to move closer to some friends in another state, but will keep it for now as my parents are nearby, and aging.

The house we will sell first has probably gone down in value, but I have already factored a 20+% drop in price. Even after the price drop I'm not losing anything as I got it for 179k in '93.

R

 

[kevin92610]

moved to Colorado. Found it to be the most like SoCal in terms of both weather and people... turns out this is a major site for CA refugees

I have found my money goes farther, life is simpler and people are very friendly. Not only that but I get Thunderstorms, snow in the winter and nothing and I mean nothing beats waking up to the sight of the Rocky Mtns every morning!!

Oh, did I mention that Denver gets more sunny days than SoCal.

Health care was easy to pick up. Called a broker, found a plan that fit me and was insured in a couple of weeks. With the amount of cash you may be able to do something like I am doing. I pay about $350/mo for my family of 5. it is a PPO with a $2000 deductible per person. I just pay for all my medical bills unless I break 2K in a single year. When you figure 2K x 5 pax +$10K worst case vs your average plan with $25 co-pay and perscription benefits at $1500/mo. I make out every year...especially since we are generally a healthy family.

We also had elderly parents nearby in CA that were not going to move so it was a tough decision... however the other nice thing about moving to the Denver area is we can hop on a plane and make a day trip back to CA at a moments notice.

All the best, Kevin

 

[EagleEye]

"Suggestions... my perspective is biased, but I am a firm believer in equity. you mention that you are a lawyer... Checkout a book called he "middle class millionaire" there is an approach discussed in there that was used during the dot-com era and is actually making a comeback for lawyers... set aside a certain amount of your legal business to be done for equity instead of cash for start-ups. The lawyers that worked on behalf of our company did this and probably ended up with some of the highest billing rates in the country when the cashed in."
*** Thanks for the suggestion. I had heard of that book, but I haven't checked it out. Now I will. I have heard of outside lawyers working for equity stakes. That was more popular during the dotcom boom. You used to hear about firms like (the now defunct) Brobeck making these arrangements. It never really caught fire with the big firms. I am not entirely sure why, but I think it is because it creates issues of who owes duties to whom (i.e., as the company's lawyer, I owe it a fiduciary duty; but as a shareholder, management owes me a fiduciary duty, and I may have an agenda as a shareholder that is different from my agenda as the company's lawyer.) It can get messy, and the big firms hate mess; they just like cash.

That having been said, maybe the work-for-equity idea is best pursued in an in-house capacity, like the GC you mentioned in your post below. (I had pangs of jealousy reading that! A one-shot payday possibly equalling a lifetime's worth of salary. That must have been one heck of an IPO.)

 

[kevin92610]

Eagle Eye, I think I misspoke. I just scanned the middle class millionaire book and i can't find a write-up about the lawyer that set aside a part of his practice for equity payments. I will dig around a bit more and see if I can figure out where I saw the write-up.

I am pretty sure it was a guy based in AZ and he set aside about 20% of his billable hours to work for equity.

regards, Kevin

 

[CaseInPoint]

...Where am I now... well my 10 year plan only has 4 years left so now I am trying to figure out what to do next. I don't see myself being involved in the schools once my kids are gone so I am tossing around ideas of what sort of business I would like to do. I haven't found the right idea yet but I do know that I would like it to be some sort of small mom/pop business that I can stand up in my community.

Hi Kevin,

Yes, what to do, indeed, when you're FIRE'd without a cause...

Personally, I'm actively looking into buying commercial real-estate these days. (I'm probably a few months away from ER). I've started to look into this after putting together my wish-list for the type of business I'd like to be in.

I suppose you've done the same, in terms of defining the characteristics of the business you'd like to operate. I seems that you're looking for a social/community component. If so, do you want to open a small neighborhood store? Restaurant? Repair shop?

I guess that some of your main questions will be how much income do you need the business to produce, how much you're willing to invest, and what kind of lifestyle commitment you'd be willing to make.

 

[kevin92610]

WOW... you dug up this thread. I am impressed!!

Funny you should bring up this point. As I currently have two business opportunities in front of me now that I am trying to decide between requiring an investment of between $250K - $500K. My process was not quite what you predicted... I looked at all of the questions you listed but what it all came down to was what you called "lifestyle commitment" and I would refer to as "Time Commitment".

When I first made this post, I was looking at some sort of community type business that I could stand up. However, the more I researched it the more I came back to the same problem. "Time Commitment". I just can't see putting in the type of hours required to run any type of retail establishment... They would all get in the way of the things I enjoy doing in my ER status (exercise, kids sports, photography, napping, lunch with DW, etc.,)

I have also looked at investing in rental properties to create an income stream, however, I really don't think I want the headaches of being a landlord.

So, where does that leave me??

I now have two opportunity's in front of me and I will probably pull the trigger on one of them in the next 90 days. One is a fitness business where I would be the startup investor and business partner. This one is truly a start-up in every since of the word. I like it in that I really enjoy being involved in the fitness industry, however, it is not going to generate any income for me, for at least a year. The other one is not glamorous at all but it is very "mechanical" (ie., it maintains a steady cash flow with little direct involvement), is very recession proof and generates a 25% pre-tax annual return on my investment. I am leaning towards the later as it has a 10+ year history with a steady cash flow and no debt. Also, the Time Commitment can be anywhere from minimal (to maintain current cash flow) to a full time job if I want to aggressively grow the business. The latter idea probably sounds like a no-brainier, however, it requires me to step out of my comfort zone in terms of the amount of money I have to invest.

Funny thing is I found both opportunities with a very simple approach. When I meet business people in my community (social settings, gym, etc.,) and they asked me what I do, I simply started telling them I am retired but that I was looking at investment opportunities in local businesses. Didn't really have any specific criteria when I started doing this (expect how much I was willing to invest) but as it turned out there are quite a few people out there that are looking for either a capital infusion to allow them to grow their business or people that have been nurturing a business idea for several years but just don't have the cash to get it off the ground.

 

[CaseInPoint]

Funny thing is I found both opportunities with a very simple approach. When I meet business people in my community (social settings, gym, etc.,) and they asked me what I do, I simply started telling them I am retired but that I was looking at investment opportunities in local businesses.

About a year ago, I started the process of providing venture capital. I started putting out the word of my interest, and started to evaluate potential businesses.

So far, I haven't found any businesses that I had any real faith in, after scratching the surface. Problems like weak organization, big accounts hanging by a thread, or reliant on a single person, became obvious. I'm still interested in providing venture capital, but I've been cautious about it.

Also, one thing about investing in someone else's business (as opposed to a 100% acquisition), is the reality of taking on partners. I know that some people do so successfully, but in my experience it's a can of worms.

Inevitably, the investor thinks that the partner is not working hard enough, is making mistakes, or taking too much vacation time, etc., and the partner thinks that the investor isn't really entitled to his fair share, because the partner is the one doing the "real" work.

While the money's flowing, the partnership goes on, but as soon as the business slows, the problems begin.

 

[kevin92610]

I hear you. Those are my exact concerns with a partnership as well. If I do pull the trigger on this partnership I am going to take the advice of my accountant and make sure we layout, in writing, what happens if the partnership goes bad. Better to do it while we are on good terms than trying to sort it out should things go bad.

As for the VC side of things, I have looked at a few start-up companies as well (more as an Angel Investor than a VC) I tend to want to limit my exposure on any one deal to about $250K. In addition to the problems you have cited I also find that coming to terms on a baseline valuation for investment purposes with a ground-level start up is always a tricky situation.... Most people want put their valuation way above where it seems reasonable to me.