How Are Members Earning Money to Fund Early Retirement?

[Surewhitey]

My conservative estimate is around $750,000 per person is required to FIRE with a 40+ year time horizon. When someone says a million dollars for two people, I find myself wondering if they have looked into the cost of health insurance. It can reach $1000 per month, per person, before paying deductibles and other related expenses.

The health insurance was the big unknown for us too...then my wife (in the insurance industry for 20+ years) looked into a high deductible ($10k) / 2 annual exams per year and said for the two of us was $300 / month. I have to tell you she is anal about insurance & won't let me touch our options.

With that said, we also have $20k in our HSA to cover the deductibles for a couple majors. You can only count the cost with assumptions & hope for the best and plan for the worst. If we get into trouble, we both are in industries as a back up plan.

 

[FUEGO]

Sounds like I'm talking to myself...we're doing everything you mentioned. Glad to hear others think a million is doable, makes me feel more confident. We're planning on giving it a go for couple years and then reassess the situation. Even if we went back to work, we'd only be 43 & 49...

A million won't buy you a lot of luxuries, but it is a lot more than most folks have at your age. We have spent two summers in Mexico and really enjoyed the slower life down there. It is hard calling it luxury since it was pretty cheap living, but if you enjoy that kind of thing then a million may be enough.

We kind of have the same plan. We can always present our ER externally as "taking a sabbatical" or "taking time off to spend with family". Those seem like valid excuses if you ever want to reenter the work force. Missing a couple years of work in your 30's or 40's isn't the end of the world, although it could be a big hit to your career growth (if that concept means anything to someone who is FI).

 

[Nords]

Meaning, how are people achieving the income needed to quit their jobs and fund Early Retirement?
I see that there are several investors on here, so I am assuming that most of you earn decent returns on your money in the market.
Does anyone have a side-gig? 2nd job? Online stream of income? High-Income job? OR, have people just drastically cut their expenses and live frugally?
I am working to free up time on nights and weekends to pursue something else. Not sure exactly what it will be, so I am trying to see what others are doing for some ideas.

It's far easier to reduce your expenses than to raise your income. You also have much more control over the former than the latter.

There's a line between frugality & deprivation, and it depends on your values. If something feels like deprivation then it will eventually stop working for you. The challenge is to figure out what brings you value and then to stop spending on the rest.

Unless you're going to school at night or parenting a family, what else could keep you from tackling the pursuit of ER?

 

[Surewhitey]

I'm depriving myself from cable tv now for a year. About to turn off Netflix too. Just stream a lot off Hulu now. Deprivation is sometimes liberation in disguise. Taking walks & bike rides now...

Oh, and saving $100 / month is fun too...

 

[Walt34]

I went a route that is admittedly hard to find now, choosing a career in law enforcement with a defined benefit (DB) pension, 100% COLA's, post-retirement medical and prescription coverage. Through even more dumb luck, I chose one of the local governments that has zero unfunded pension liability.

But there was a price to pay for that too. I worked weekly rotating shift work for 18 years which any doc now knows is bad for one's health. About 20-25% go out on permanent disability, and I went to eight funerals. So at one level I'm happy that I can still walk across the room and get myself a glass of water without a cane or walker. I know a bunch of guys my age who can't.

There is financial risk, and there is physical risk. Both can, but don't always, pay well.

 

[calmloki]

Rents.

+1

Also regarding Nords' "easier to not spend than to earn": Someone mentioned that if you make a buck taxes eat, say, 25% of it. If you reduce a buck in spending it's tax free and has 33% greater effect than earning a buck. I'm lazy and endorse that message.

 

[eytonxav]

In line with recent topics:

1) get gun
2) rob bank
3) put money in home safe
4) use to bump your swr by 1%

 

[FIREd]

I think these 3 graphs answer the OP's question (all data from Quicken):

First, our income has increased nicely over the years, but our expenses have not. This has allowed us to bank all raises and bonuses.

Second, most of our income has come from wages. Bonuses and stock options helped but were not a deciding factor.

Third, our investments have done quite well over the past 2 years. This has given a nice boost to our portfolio.

 

[easysurfer]

For me, to be able to FIRE was mostly to LBYM (pretty much naturally fit my approach) and while working 20+ years for Megacorp I maxed out my contributions to my 401K and IRA. I started at an early age (but not from the very beginning) during the start of my career. Also, my investment approach was to DCA, index and let the magic of compounding do it's magic.

Things still aren't smooth sailing all the way, but it got me to the point that I could say "no mas" to my j*b when the time was right.

 

[jackontrack]

@Nords - nothing is stopping me from getting on the path to ER. I am self employed, and traditionally I would reinvest most of my cash into my business, however now I am at a point where I can keep coasting along like this for awhile and my overhead is low, so I am focusing inward on lowering expenses and also raising revenues by increasing prices. You're right, it's much easier to lower expenses. Just changing my behavior with electricity has cut my electric bill by $30/month. I just unplug things when I'm not using them instead of leaving them on standby.

It's a bit of a challenge when you live with your partner, however I have no kids, no property, and very little debt left, and I'm under 30 so the opportunities are there. I just have to get her into this concept a bit more. I've just slashed expenses with my business recently so I am looking to direct that money into something else. Had some ideas I wanted to cultivate to make money on the side, and I even looked into purchasing a laundromat business or something of that nature. I can always choose to make more money (at the expense of my personal life, of course), however I want to learn more ways for my money to work harder for me. Some savings are deducted automatically for my SEP-IRA and some other long-term savings vehicles, however I definitely think I can do more.

@Surewhitey - I'm with u on the cable thing. My cable bill is approaching $180/month and I've been considering dropping much of my service since we don't even watch much TV, but I do enjoy HBO.

It's tough to get rid of all those things that we enjoy. I definitely agree that it's all about a person's perspective. I have a friend who makes a low six-figure income, has a wife, 2 dogs, etc. and lives on less than I do. He told me that because both he and his wife never really experienced a middle class lifestyle until recently, that he was never really "accustomed" to anything, so they don't spend much, don't drive, and don't need much space to live in. I think the only thing they "splurge" on is travel.

With me and my partner on the other hand, we came from what most would consider a middle-class backgrounds. We were never really "keep up with the joneses" people, however we are just accustomed to having certain things. I make about the same as my friend does, however I live in a bigger place, in a more expensive neighborhood, and I have a gas-guzzling SUV, premium cable, and travel a lot. Plus a few other expensive habits.

I really did not think about all of this until recently after I read Early Retirement Extreme, however we both enjoy a good standard of living, but I realize that I have to un-learn many of the bad habits and expectations I picked up as I grew up. One of the things that had a huge impact on me was when the author talked about purchasing real estate. I did not realize until lately that when you get a mortgage, that you wind up paying double the actual value of the loan. That was a shock, and really got me to re-think what I truly valued in life.

Either way, I say all that to say that this is a constant learning experience for me, and I thank everyone for their insight.

 

[Sarah in SC]

Jack, if you liked Jacob's ERE book, you might like this fellow. I've enjoyed reading his blog for a bit. Mr. Money Mustache | Putting the Cash in your Stash

 

[chinaco]

We got educations and then good jobs with companies that had good benefits. We saved a big part of ourearnings and invested (conservatively and did not make too many mistakes). We kept our debt low and paid it off early.

Mostly hard work and savings... a little luck along the way also helped.

 

[Nords]

With me and my partner on the other hand, we came from what most would consider a middle-class backgrounds. We were never really "keep up with the joneses" people, however we are just accustomed to having certain things. I make about the same as my friend does, however I live in a bigger place, in a more expensive neighborhood, and I have a gas-guzzling SUV, premium cable, and travel a lot. Plus a few other expensive habits.
Either way, I say all that to say that this is a constant learning experience for me, and I thank everyone for their insight.

Yep. It can be very hard to change the values you grew up with.

I had the benefit of living on a submarine with little spare time or sleep, let alone personal space or privacy. A few years of that routine makes it pretty straightforward to figure out what's important to you.

 

[scrabbler1]

Meaning, how are people achieving the income needed to quit their jobs and fund Early Retirement?

I see that there are several investors on here, so I am assuming that most of you earn decent returns on your money in the market.

Does anyone have a side-gig? 2nd job? Online stream of income? High-Income job? OR, have people just drastically cut their expenses and live frugally?

I am working to free up time on nights and weekends to pursue something else. Not sure exactly what it will be, so I am trying to see what others are doing for some ideas.

1) No kids.

2) No debts; I paid off my student loans before I took on a mortgage which I paid off in 9 years. Never had a car loan. Never carried a balance on my credit card, I use it maybe once every 2 months.

3) LBYM.

4) Worked for a company whose company stock grew by 3,000% in the 11 years I was there when its ESOP existed. I cleared 75% of it after taxes when I cashed it out and invested it in a bond mutual fund whose dividends more than cover my monthly expenses.

 

[pimpmyretirement]

The problem with individual health insurance, is it is inexpensive until you need it. Once you have a condition, you will pay big money for insurance. Even with the 2014 health care reform, that money is still coming from somewhere.

I like the ERE book, though Jacob takes things further than I am willing to. Primarily, inexpensive housing has a small % of residents that mess it up for everyone. I do not want to live around them. If you read his blog, it does appear he became financially independent, retired, and then promptly started other projects that cover his expenses anyway... It seems to me if one is going to work anyway, a few luxuries can be enjoyed.

When evaluating a luxury, I consider how much longer I have to work in order to save enough money to afford that luxury forever. If my SWR is 3.3% and a house keeper is $1000 a year, it requires $33k in assets to pay for a house keeper forever. That's an extra 6 months of working, which is totally worth it for me.

On the other hand, cable at $180 a month works out to more than a year of extra work. That is not even close to worth it for me. The library has free movies, and I can stream TV over the internet for free.

$360 a year to keep your appliances plugged in... that works out to an extra 12k in assets, or in my case around 3 months of extra working. I'd rather work 3 more months than unplug my appliances every day for the rest of my life.

 

[GaryInCO]

My conservative estimate is around $750,000 per person is required to FIRE with a 40+ year time horizon.

Really! I thought $1M wasn't enough.

3%/yr SWR is supposed to be "safe." On $750k that's $1875/mo. I wouldn't want to live on that. But if you add SS into the equation, it sounds do-able. Which means no ER until 66, which is not all that E.

If you can average just 5% on your savings, that's over $3100/mo, and no drawdown on your principal. But 5% could be hard to maintain over the long haul.

I had hoped for a comfortable retirement with travel & other enjoyments. When DW walked with over half our joint net worth, that put a big dent into those plans. I may have to scale back my ideas.

 

[Gatordoc50]

1) No kids.

2) No debts; I paid off my student loans before I took on a mortgage which I paid off in 9 years. Never had a car loan. Never carried a balance on my credit card, I use it maybe once every 2 months.

3) LBYM.

4) Worked for a company whose company stock grew by 3,000% in the 11 years I was there when its ESOP existed. I cleared 75% of it after taxes when I cashed it out and invested it in a bond mutual fund whose dividends more than cover my monthly expenses.

Aha! The one person so far who has obtained his retirement income thru gains in the stock market. Actually, you worked for the company but I'll give it to you anyway. I knew there was somebody out there! The general theme seems to be to spend less than you make, use debt judiciously, and take care of windfalls, expected or not. Good stuff.

 

[jackontrack]

@Sara in SC - I'm going to check out that blog later today. Thx!

 

[pimpmyretirement]

Really! I thought $1M wasn't enough.

3%/yr SWR is supposed to be "safe." On $750k that's $1875/mo. I wouldn't want to live on that. But if you add SS into the equation, it sounds do-able. Which means no ER until 66, which is not all that E.

If you can average just 5% on your savings, that's over $3100/mo, and no drawdown on your principal. But 5% could be hard to maintain over the long haul.

I had hoped for a comfortable retirement with travel & other enjoyments. When DW walked with over half our joint net worth, that put a big dent into those plans. I may have to scale back my ideas.

I am thinking more like a 3.3% SWR, but...

It really depends how you want to live and what you value. I don't like to travel. I don't like to drive and am fine with a used car, or even no car if it makes financial sense. I am happy sharing a 2 bedroom townhouse with my wife. I don't want kids and neither does she. I get excited about finding a pound of strawberries at Aldi for 99 cents, or making a batch of chili and cornbread to eat for dinner all week. I work from home and love it, but my desk is a $20 folding table in the basement. I don't have an ipad, smartphone, or espresso machine.

I do have weakness for video games (got a PS3 AND a DS), delivery pizza (deep dish once or twice a month), beer (maybe a case a month) and weights (around 2000lbs of equipment). These are largely inexpensive activities, but I find them fun.

I prefer the simplicity that comes with a low cost lifestyle. I buy in very strongly to the idea that it is all relative.

 

[RunningBum]

The problem with individual health insurance, is it is inexpensive until you need it. Once you have a condition, you will pay big money for insurance.

Everything I've heard says that's not true. They can raise the rates for the whole pool, but not for an individual.

Now, if enough people in your pool get sick, they can jack rates up enough that the healthy people leave, and those who are less insurable are forced to stay. Then with fewer healthy people in the pool, rates continue to spiral up as the pool has turned into a high-cost, high-risk pool, which it wasn't when you joined.

Someone more knowledgeable correct me if I'm wrong.

 

[scrabbler1]

Aha! The one person so far who has obtained his retirement income thru gains in the stock market. Actually, you worked for the company but I'll give it to you anyway. I knew there was somebody out there! The general theme seems to be to spend less than you make, use debt judiciously, and take care of windfalls, expected or not. Good stuff.

I am not sure if you call it gains in the stock market. The stock was privately held, as the company had not gone public until after I left it. The stock's value rose every quarter I was there (including in the 2000-2002 down market) except for a small drop in the middle of 2007 and another in late 2008 just before I left, hardly mimicking the stock market.

I do agree with your last sentence (I bolded it), though.

 

[scrabbler1]

Everything I've heard says that's not true. They can raise the rates for the whole pool, but not for an individual.

Now, if enough people in your pool get sick, they can jack rates up enough that the healthy people leave, and those who are less insurable are forced to stay. Then with fewer healthy people in the pool, rates continue to spiral up as the pool has turned into a high-cost, high-risk pool, which it wasn't when you joined.

Someone more knowledgeable correct me if I'm wrong.

I don't know if the underlying cause is correct, but in my situation the insurer jakced up my rate by 20% in 2010 and another 25% in 2011, so I, a healthy person, just left, probably further contributing to the upward spiral of those who remain there.

 

[Danmar]

My approach different then most here. Very high paying job with lots of equity comp. Equity went up while my lifestyle did not. At some point realized that I had a lot of money while not enjoying the jpb anymore. So retired. Spend more in retirement than when working.

 

[rescueme]

I had the benefit of living on a submarine with little spare time or sleep, let alone personal space or privacy.

The same as being married and having kids?

 

[harley]

I did the standard stuff - saved prodigiously, LBYM'ed, didn't increase my lifestyle with my salary, did pretty well off and on in the market. But I would say the single most important thing was that I never owned a boat.