Early Retirement in the early 21th century?

[Danny]

I believe the 90's were an extraordinary time. I know it allowed me to make some crazy money in the stock market. Because of that I was able to retire when I was 50.
I don't think that kind of easy money will happen again any time soon for most folks.
Maybe there is another way like real estate or a big wage job or inheritance, but I don't think the stock market in the foreseeable future will make you rich like it did in the 90's, especially following an asset allocation model.

Anyone today that is not that far along, that is counting on the stock market to make them rich enough to retire early is facing a challenging future. Sorry. I think the deal has changed compared to those of us that have already retired early. Many of you will face a life where you will be lucky to retire in your 60's with an income that gives you a secure retirement.

 

[Jay_Gatsby]

I don't agree. According to the numbers (which I've run dozens of times) if you have a decent amount of assets in your mid-30s (like myself) early retirement is more or less assured, even at a conservative rate of 7% a year. The key, as this board espouses non-stop, is LBYM. Absent LBYM, you may be right if the crazy days of the stock market and the real estate boom are behind us.

 

[kat]

Well, I think you're both right. I know my parents did very well having their investments in the right place at the right time, and naturally living well below their means. With his pension and social security, my Dad's retirement income is more than it was when he was working. My parents aren't even touching their very considerable savings. They never took it for granted. It's in a trust for my two handicapped brothers.

I agree that it's very likely my generation will not see a great bull market at the right time, and I will never have a pension. But I've always known that, at least during my short time actually paying attention to these things. When you know what you're facing, you can deal with your set of cards a lot better. I might, if my conservative plans work out, be okay with the ER I have in mind. But I have about a half dozen contingency plans. I won't bore you with the details.

I shudder, though, when I think about how life will be for people who don't or can't prepare and plan. But I suppose that's always how it's been.

I think I'm a little like those here who ER'd because their gut or circumstances said NOW, come what may. And if I'm wrong, I can use one of my back up plans. That's okay too.

 

[wildcat]

Good topic D-T. Kind of along the same lines as Jay, I believe if one starts fairly early it can be done with mediocre returns. Saving and asset allocation will be the 2 most important variables (only ones we can control) for each person trying to make ER.

I think saving was important in the early 90s but with returns like that it certainly compensates for a few LBYM "off" years and/or a smaller nest egg. It wasn't the reason people here ER'd but it helps.

 

[justin]

I'm with Jay on this one. I've run the numbers, and even assuming zero percent real returns, we'll still be able to get out early. They key is LBYM. For example, a family that spends only half what they earn and saves the rest only has to replace half their income in retirement (to maintain the same level of spending). Ex: I earn $100k, I spend $50k. The rest I save. My nest egg only has to produce $50k/yr upon retirement. With the high savings rate that LBYM provides, a sufficiently large nest egg can be acquired even during periods of mediocre market returns.

There is another aspect of low market returns over the next 10-20 years. If GDP/corporate earnings continue to grow in real terms over that period, and the market stays relatively flat, the P/E ratio will drop significantly, thereby making stocks cheaper in the future, and setting up the potential for higher returns.

 

[Andre1969]

I think it can be done. I'm actually at the point right now where if I wanted to cut back on investing for my early retirement, I could easily cut back to part time work and could make it for the forseeable future. It would severely cripple the growth of my nest egg though, and would delay retirement. At the rate I'm going though, I'm reasonably confident that by the age of 50, at the latest (I'm 35 now) that I'll be able to drop out of the workforce entirely.

The biggest factor, I think, is the whole LYBM thing. Also, I never had kids, so that's probably a big factor.

 

[Nords]

I don't think that kind of easy money will happen again any time soon for most folks.
Maybe there is another way like real estate or a big wage job or inheritance, but I don't think the stock market in the foreseeable future will make you rich like it did in the 90's, especially following an asset allocation model.

Anyone today that is not that far along, that is counting on the stock market to make them rich enough to retire early is facing a challenging future. Sorry. I think the deal has changed compared to those of us that have already retired early. Many of you will face a life where you will be lucky to retire in your 60's with an income that gives you a  secure retirement.

Hey, c'mon, Dan, welcome back & all, but you're bringing down the whole party!

What alternative do you propose other than the investments that historically have offered survivable inflation-beating portfolios? Big wages & inheritances aren't the majority of the ERs here, either. RE is a minority that is highly dependent on locality (Hawaii RE spent most of the 90s going down or flat, but not up).

The '90s didn't facilitate my ER any more than the '00s prevented it. I suspect that the "secret" to ER will continue to be LBYM, saving regularly in low-cost investments, and diversifying into inflation-beating asset classes.

But you can try out that "I got mine, but the '90s will never happen again" line at your next social affair. I'm sure you'll get a lot of attention!

 

[retire@40]

Maybe there is another way like real estate... but I don't think the stock market in the foreseeable future will make you rich like it did in the 90's...

The more I hear statements like that, the more I want to get out of real estate and get into the stock market. I wish more people thought like you for the next few years while I'm accumulating equity funds.

 

[Danny]

Hey, c'mon, Dan, welcome back & all, but you're bringing down the whole party!

What alternative do you propose other than the investments that historically have offered survivable inflation-beating portfolios? Big wages & inheritances aren't the majority of the ERs here, either. RE is a minority that is highly dependent on locality (Hawaii RE spent most of the 90s going down or flat, but not up).

The '90s didn't facilitate my ER any more than the '00s prevented it. I suspect that the "secret" to ER will continue to be LBYM, saving regularly in low-cost investments, and diversifying into inflation-beating asset classes.

But you can try out that "I got mine, but the '90s will never happen again" line at your next social affair. I'm sure you'll get a lot of attention!

Thanks Nords! You are right, what the hell was I thinking?
Alternatives?...well.... shorting the market? Investing in Alexander & Baldwin (ALEX) - they got some choice Hawaiian real estate - something I'm told they aren't making anymore of, wait no thats not right there are volcanos and one has been making more lately...seriously I'm not sure what a good alternative is, except picking a really good company whose stock is going to multiply geometrically, like Intel & Sun did for me in the 90's or getting some inside information or be a lobbyist in DC....
LBYM is certainly a big help, but with the returns my crystal ball reveals for the future, you best become a hunter-gatherer.
Owning a house in a high rent district then selling and moving to less expensive area to rent will help, also.
It's better that I should say these things to the forum than to deliver them to people in the same room, I think.
Before I turn back to my more encouraging and optimistic self, I must also point out the obvious that its going to take a heck of lot more money to ER in 20-30 years.

I know that if someone has a realistic goal, sets up a plan of action and continues to work to make the goal happen, then it has a very good chance of happening.

 

[Danny]

The more I hear statements like that, the more I want to get out of real estate and get into the stock market. I wish more people thought like you for the next few years while I'm accumulating equity funds.

@40, you read me wrong. I'm unloading real estate as we speak. In a while, I will also sell the house and rent!

There's probably ways to make money in real estate, like owning a home someplace reasonably priced...oh like out on the prairiies of South Dakota. I think a good bet would be to buy a salmon farm out there and then sell it to CT.

 

[FreeBird]

The 90's certainly were an extraordinary time to be invested in the stock market and I also benefited, but only minimally since my entire savings plan just wasn't very significant until the late 80's and just barely a "trickle" to what I've accumulated since. Regardless, I still have no regrets for only having about a third of my investments in mutual funds since I was just learning the ropes of a new (for me) investment vehicle so I aired on the side of caution and conservative diversification.

Today at age 49 I'm a bit over 50% invested in the market with the remainder in T-Bill's & bond's and now back to the mm account with interest rates rising.

As someone else mentioned I also have somehow managed to wind up with no expensive dependents (or dependencies) which has allowed me to accumulate a lot more wealth than I'd otherwise be able to do taking into account my low teacher's salary... but I guess that loving my job is worth something! 

 

[Nords]

Thanks Nords! You are right, what the hell was I thinking?
Alternatives?...well.... shorting the market? Investing in Alexander & Baldwin (ALEX) - they got some choice Hawaiian real estate - something I'm told they aren't making anymore of, wait no thats not right there are volcanos and one has been making more lately...seriously I'm not sure what a good alternative is, except picking a really good company whose stock is going to multiply geometrically, like Intel & Sun did for me in the 90's or getting some inside information or be a lobbyist in DC....

You're preaching to the choir; I bought A&B at $20 a few years ago. I notice they're selling off their real estate as fast as they can, and their Matson shipping lines is one of the things keeping me from jumping into EGLE with both feet.

Small-cap value. Berkshire Hathaway. The occasional stock selling for 60 cents on the dollar. We don't need big winners (perhaps we never did) but getting a few % over inflation keeps one from grasping farther than the safety net.

Although it's probably a poor analogy, Kilauea built a 40-acre lava shelf over the last few years. A couple weekends ago the whole thing (over 100 feet thick) collapsed and dropped into the ocean. Good thing they weren't selling REIT shares!

 

[Danny]

You're preaching to the choir; I bought A&B at $20 a few years ago. I notice they're selling off their real estate as fast as they can, and their Matson shipping lines is one of the things keeping me from jumping into EGLE with both feet.

Small-cap value. Berkshire Hathaway. The occasional stock selling for 60 cents on the dollar. We don't need big winners (perhaps we never did) but getting a few % over inflation keeps one from grasping farther than the safety net.

Although it's probably a poor analogy, Kilauea built a 40-acre lava shelf over the last few years. A couple weekends ago the whole thing (over 100 feet thick) collapsed and dropped into the ocean. Good thing they weren't selling REIT shares!

I've owned ALEX on and off for over 30 years. Took a long time to breakout of the 20's. Once the latest CEO (a RE man) got to work on making Real Estate a bigger part of the revenue & income stream, Wall Street started to notice. Matson has potential exposure to periodic labor problems, but seems to be keeping it quiet lately on the waterfront and ships. The China leg being added to the Guam route is smart leveraging and a great solution to the expiration of the APL joint venture. They are starting to think about using the HC&S sugar plantation for ethanol production, which could be huge and a great solution to the so so sugar returns, the threat of congress removing their subsidy and the complaints of recent arrivals who find themselves living downwind from sugar cane harvest burns. A very well managed and conservatively run company. I worked for them over 20 years and this year started getting pension checks. I want them to be successful for the sake of my stock and my continuing to get that pension!