retired at 37?

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ieee488
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retired at 37?

Post by ieee488 » Sun Mar 30, 2014 12:42 pm

I saw recently on CBS News, that a married man in Orlando retired at 37.

He was a lawyer and so is his wife.

He claimed that he started working at age 23 in 2001 and maxed out his 401K and his IRA and was able to retire.
He claimed he never made more than $100K a year. Not sure how much his wife made.
She's now on maternity leave.
He claimed he invested "aggressively" which probably meant all stocks.

Does the financial returns of the entire stock market between 2001 and 2014 make this possible?
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livesoft
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Re: retired at 37?

Post by livesoft » Sun Mar 30, 2014 12:50 pm

No, but a nice inheritance does. Just because someone never made more than $100K a year does not tell the whole story. It is also possible that his spouse is still working (at least from what you presented here).
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steve_14
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Re: retired at 37?

Post by steve_14 » Sun Mar 30, 2014 12:51 pm

If you have a lawyer wife continuing to work, I suppose you can declare yourself retired at anytime. I'd call that "living off my wife's income" though, not "retired". You could have saved enough to retire after the last 15 years, but you'd be living around the poverty line.

ieee488
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Re: retired at 37?

Post by ieee488 » Sun Mar 30, 2014 12:52 pm

He claimed no inheritance.

He claimed that his wife can go back to work, but she doesn't need to.

Where do I find a calculator where I can input saving $75K a year for 13 years in index funds and come out with enough money to retire?
He claimed he saved 1/2 salary every year.
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livesoft
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Re: retired at 37?

Post by livesoft » Sun Mar 30, 2014 1:00 pm

Go to morningstar.com and look at "growth of" charts. You can make 14 charts from 2001-2014, 2002-2014, 2003-2014, … and then add them up.

I can give you another data point: My family has increased its net worth by more than a couple of million dollars since 2001. My spouse has never made as much as $100K a year.
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EnjoyIt
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Re: retired at 37?

Post by EnjoyIt » Sun Mar 30, 2014 1:05 pm

It is very possible. putting away 50K over 15 years at 8% leaves you with ~$1,428,000. At a 4% withdrawal rate will give you ~$57,000/year to live off of. If he states he made 100K/yr invested 50K/yr, he should be able to live of his returns after 15 years.

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Re: retired at 37?

Post by Grt2bOutdoors » Sun Mar 30, 2014 1:53 pm

My guess is he got "lucky" by picking one or two winning lottery ("stock") tickets. It's entirely possible he invested no more than $20K in these picks and they each returned a million or more in a tax deferred account. A mutual fund will not be able to reproduce those results, however you will not lose your shirt either. Try that with a lottery ticket - either you win or you lose.
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steve_14
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Re: retired at 37?

Post by steve_14 » Sun Mar 30, 2014 2:26 pm

Beckmaster wrote:It is very possible. putting away 50K over 15 years at 8% leaves you with ~$1,428,000. At a 4% withdrawal rate will give you ~$57,000/year to live off of. If he states he made 100K/yr invested 50K/yr, he should be able to live of his returns after 15 years.
If his peak income was under $100K/year, it's unlikely he was averaging $50K/year in savings from age 23 onward.

livesoft
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Re: retired at 37?

Post by livesoft » Sun Mar 30, 2014 2:38 pm

steve_14 wrote:If his peak income was under $100K/year, it's unlikely he was averaging $50K/year in savings from age 23 onward.
I disagree. The reason I disagree is that we don't know what his spouse and thus his family earned. They could have saved invested $100K a year or not.

Also the OP noted his spouse was "now on maternity leave". That ain't the same as retired.
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John3754
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Re: retired at 37?

Post by John3754 » Sun Mar 30, 2014 2:40 pm

A lot of this is highly dependent on a persons lifestyle and spending habits, which is a missing piece in this story. If someone lives on $15K a year they could maintain their lifestyle with a 3% withdrawal rate on a $500k portfolio.

ieee488
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Re: retired at 37?

Post by ieee488 » Sun Mar 30, 2014 2:46 pm

He sounds like a Boglehead in terms of his saving habits.
He showed a binder showing monthly expenses.
He bought used cars, his house with the swimming pool at the bottom of the Florida housing market, etc.
His wife was quoted as saying he never gave her flowers and jewelry.

The only non-Boglehead may have been his "aggressive investing".

I'll try to see if I can locate a video of that segment online.
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Retread
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Re: retired at 37?

Post by Retread » Sun Mar 30, 2014 2:49 pm

ieee488 wrote:He claimed that he started working at age 23...
Graduated from law school by 23?? Very rare...
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chaz
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Re: retired at 37?

Post by chaz » Sun Mar 30, 2014 2:53 pm

Retread wrote:
ieee488 wrote:He claimed that he started working at age 23...
Graduated from law school by 23?? Very rare...
Bruce
Maybe a job until he passed the bar exam at a later date.
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Retread
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Re: retired at 37?

Post by Retread » Sun Mar 30, 2014 3:45 pm

chaz wrote:
Retread wrote:
ieee488 wrote:He claimed that he started working at age 23...
Graduated from law school by 23?? Very rare...
Bruce
Maybe a job until he passed the bar exam at a later date.
I guess that's right, Chaz. I read it that he had been a lawyer since age 23.
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ieee488
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Re: retired at 37?

Post by ieee488 » Sun Mar 30, 2014 4:29 pm

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dharrythomas
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Re: retired at 37?

Post by dharrythomas » Sun Mar 30, 2014 5:08 pm

I don't like the odds on 4% withdrawals starting at 37. That's a 50-60 year planning horizon. :shock:

Jfet
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Re: retired at 37?

Post by Jfet » Sun Mar 30, 2014 5:13 pm

If he invested heavy in either Apple or Tesla, he could easily have enough money to retire with just a few hundred thousand initially. Other than an inheritance this would be my guess.

Or he did some crazy plays in biotech. It isn't hard to get a 5 or 10 bagger there if you are lucky. We don't hear about the other 9 lawyers who lost everything betting....except maybe if you watch the Australian version of Rake.

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Re: retired at 37?

Post by Jfet » Sun Mar 30, 2014 5:16 pm

dharrythomas wrote:I don't like the odds on 4% withdrawals starting at 37. That's a 50-60 year planning horizon. :shock:
Firecalc gives you a 84% chance with a 4% withdrawal on a 50 year horizon but I think it is starting to break down because there are not enough 50 year periods for a good sample set.

84% chance is a lot better than some people get who have health problems.

livesoft
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Re: retired at 37?

Post by livesoft » Sun Mar 30, 2014 5:18 pm

I saw nothing remarkable that many people on the forum have not done. His spouse used "air quotes" for retired and clearly stated she is not retired. Sure, they are financially independent, but do you think they have college education money for all the kids saved up? Maybe. :) Can they live without working again? Sure, why not.
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freddie
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Re: retired at 37?

Post by freddie » Sun Mar 30, 2014 6:19 pm

The real question is if you make it like 15 years with "normal" market returns (lets say 7% absolute in a 2% inflation environment, you can tweak those slightly) what do your odds go to? Most of those firecalc failures tend to be when you have horrible results early. You survive those first 15 years with decent portfolio growth and you end up with those huge numbers going forward.

It doesn't sound crazy to me. We have no clue what she makes but guessing the family income is around 200k is pretty reasonable. Pay 30% in taxes and we are looking 140k. Live on 70 and invest 70. Get 10% (good but not insane. Do the math if he was 100% stocks and invested mainly in small caps) and your looking at over 2 million. Throw in random unmentioned things (Only made 100k but got a 20k employer match,...) and you really don't need much of a return.

Now finding people that want to live on 70k when they could on 100k is a lot harder but it isn't like living on 50% more than the average american family makes is remotely roughing it.
Jfet wrote:
dharrythomas wrote:I don't like the odds on 4% withdrawals starting at 37. That's a 50-60 year planning horizon. :shock:
Firecalc gives you a 84% chance with a 4% withdrawal on a 50 year horizon but I think it is starting to break down because there are not enough 50 year periods for a good sample set.

84% chance is a lot better than some people get who have health problems.

livesoft
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Re: retired at 37?

Post by livesoft » Sun Mar 30, 2014 6:21 pm

freddie wrote:The real question is if you make it like 15 years with "normal" market returns (lets say 7% absolute in a 2% inflation environment, you can tweak those slightly) what do your odds go to? Most of those firecalc failures tend to be when you have horrible results early. You survive those first 15 years with decent portfolio growth and you end up with those huge numbers going forward.

It doesn't sound crazy to me. We have no clue what she makes but guessing the family income is around 200k is pretty reasonable. Pay 30% in taxes and we are looking 140k.
They are not paying 30% in taxes. See this thread on this: http://www.bogleheads.org/forum/viewtopic.php?t=79510 And with him not working, their income taxes have probably gone to ZERO.

I'd also bet that he didn't run FIRECalc because it might scare him. :)
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Re: retired at 37?

Post by tfb » Sun Mar 30, 2014 6:26 pm

livesoft wrote:Go to morningstar.com and look at "growth of" charts. You can make 14 charts from 2001-2014, 2002-2014, 2003-2014, … and then add them up.
Just did that. Total comes out to 25x for VTSMX. Saving $75k a year will get $1.9m. Beating the market with some lucky individual stocks will get more. He worked for the NYC government. There may be a pension as well.
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staythecourse
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Re: retired at 37?

Post by staythecourse » Sun Mar 30, 2014 6:51 pm

tfb wrote:Just did that. Total comes out to 25x for VTSMX. Saving $75k a year will get $1.9m.
This deserves its own thread. The key was the guy invested with regular contributions through the whole "lost decade" and had it peak before his "retirement". He followed the Dr. Bernstein "Get down on your knees and pray for a brutal bear market" approach when he was young and did great.

Another example of 100% stocks (and all being in U.S. TSM) being just fine IF one can withstand the ride.

Good luck.
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Re: retired at 37?

Post by freddie » Sun Mar 30, 2014 6:59 pm

It is easy to come up with cases where you pay low income taxes. Reality is that they often require things that are impossible for a couple to do They don't have the choice to have 1 person make 180k and the other 20k. And it is real hard for 37 year old to take a deduction that requires you to be 50. Or taking a tax credit for the kid in college kid that was born in the last year. Or how donating 8k to charity increases the amount of money that you invest. If you feel better call it 20% (15k in SS, 20k in income, 5k in property). Doesn't change the basic part that saving 2 million by 37 isn't insane and doens't require you pick some 10 bagger that you sunk 100k into.

And his not working today really doesn't help explain how they get ~ 2million in assets.

livesoft wrote:
freddie wrote:The real question is if you make it like 15 years with "normal" market returns (lets say 7% absolute in a 2% inflation environment, you can tweak those slightly) what do your odds go to? Most of those firecalc failures tend to be when you have horrible results early. You survive those first 15 years with decent portfolio growth and you end up with those huge numbers going forward.

It doesn't sound crazy to me. We have no clue what she makes but guessing the family income is around 200k is pretty reasonable. Pay 30% in taxes and we are looking 140k.
They are not paying 30% in taxes. See this thread on this: http://www.bogleheads.org/forum/viewtopic.php?t=79510 And with him not working, their income taxes have probably gone to ZERO.

I'd also bet that he didn't run FIRECalc because it might scare him. :)

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Re: retired at 37?

Post by Snowjob » Sun Mar 30, 2014 8:02 pm

If they both are boglehead lawyers absolutely. If the spouse is on the same page and saving the same amount from the same time there is no reason they cant retire. The key being that both people in the relationship are into this. if its only one, good luck lol

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webslinger
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Re: retired at 37?

Post by webslinger » Sun Mar 30, 2014 8:17 pm

I'm curious as to whether they factored in the cost of health inurance.

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livesoft
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Re: retired at 37?

Post by livesoft » Sun Mar 30, 2014 8:29 pm

I will guess that they are using her health insurance since she is not retired yet.
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Re: retired at 37?

Post by bhsince87 » Sun Mar 30, 2014 8:34 pm

I’ve spent a lot of time reading the “extreme” early retirement sites. It’s absolutely possible, and you don’t need super market returns.

The key is to live not just below your means, but very, very far below your means.

If you’re willing to live off say, $30k after tax per year, and you make $100k after tax, it adds up fast. $70k per year invested at 8% return gets you to a million or so in 10 years. Then you’re pretty much set. And 30k after tax isn't such a bad life these days.

The other key is they’re not out on the golf course or boat all day. They are still doing productive work of some sort once in a while, and probably generating some occasional cash income. It doesn’t take a lot to make it work.
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Re: retired at 37?

Post by Nukeboilermaker » Sun Mar 30, 2014 8:43 pm

Mr. Money mustache is a blogging example of extreme retirement.

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ClevrChico
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Re: retired at 37?

Post by ClevrChico » Sun Mar 30, 2014 8:54 pm

I agree, it's possible. He'll likely only be paying capital gains taxes in retirement. With a lower tax burden, he may even be able to inflate his lifestyle.

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Re: retired at 37?

Post by jd88 » Sun Mar 30, 2014 11:36 pm

bhsince87 wrote: If you’re willing to live off say, $30k after tax per year, and you make $100k after tax, it adds up fast. $70k per year invested at 8% return gets you to a million or so in 10 years. Then you’re pretty much set. And 30k after tax isn't such a bad life these days.
The trick of course is actually making 100k after tax and spending 30k. Especially for someone young, most of the places where you make that kind of money tend to have very high COLs. I'm not too far from that 100/30 spread, but I live pretty frugally, which I'm happy with for now but could get tiring after a while. 30k in the Bay Area ain't such a bad life for a young single person, but most people would probably be pretty unhappy :)
Last edited by jd88 on Sun Mar 30, 2014 11:47 pm, edited 1 time in total.

mnaspbh
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Re: retired at 37?

Post by mnaspbh » Sun Mar 30, 2014 11:40 pm

Nukeboilermaker wrote:Mr. Money mustache is a blogging example of extreme retirement.
He actually makes a lot of money from his blog--more than enough to support his family, according to one of his posts in 2013; I don't think he's a good example of "extreme retirement". "Extreme retirement" would be retiring early and living solely off one's investments, IMO--not being supported by one's spouse, or by a "side business" that takes work. And I really don't get why working while "retired" is still called being retired, and not "working much less than I used to". :annoyed

That said, living far below one's means certainly facilitates major savings, and can enable early retirement at a similar lifestyle level. A big chunk of market-luck doesn't hurt.

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Re: retired at 37?

Post by hiddensee » Sun Mar 30, 2014 11:49 pm

I think you're looking in the wrong place. Low spending makes this possible, not high stock market returns. People on Bogleheads generally don't seem willing to trade an upper middle class lifestyle for extra years of retirement; if you're willing to live a frugal lower middle class lifestyle in a low cost of living area this is quite believable on two incomes of combined >$100k.

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Re: retired at 37?

Post by Lollytiger » Mon Mar 31, 2014 1:20 am

This link is pretty relevant for the discussion: http://www.early-retirement.org/forums/ ... 54346.html

Unfortunately, although I can find that VTSMX returned 5.54% annually over the last 15 years I don't really feel like finding the exact numbers since 2001 for both VTSMX and inflation (to calculate the real return). Besides, investing aggressively can mean anything, he may have had his own judgment on how much money is needed to retire, etc. However, the chart gives a 63% of net savings rate to be necessary if you work for 14 years with 2.5% real return, which I presume is approximately what 100% VTSMX would have given. That sounds doable if you make 100k+.

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Re: retired at 37?

Post by hiddensee » Mon Mar 31, 2014 1:24 am

Over 10 years the stock returns almost don't matter. To take the previous example, $70k/year for 10 years gives $1m @ 8% or $700k @ 0%. Important but not game-changing. Stock returns will be much more important in keeping him retired.

The game-changing factor is whether he ever lived the $100k lifestyle, to miss it moving to $30k. Most on $30k, who never spent more than that, don't consider themselves desperately poor. Graduate students even contrive to live upper middle class-ish lives on that, usually without the support of shared expenses.

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Re: retired at 37?

Post by Valuethinker » Mon Mar 31, 2014 4:48 am

Beckmaster wrote:It is very possible. putting away 50K over 15 years at 8% leaves you with ~$1,428,000. At a 4% withdrawal rate will give you ~$57,000/year to live off of. If he states he made 100K/yr invested 50K/yr, he should be able to live of his returns after 15 years.
Inflation?

That 4% pa rule is pretty dangerous. If you are not invested wholly in US Treasury Bonds, then you must flex your drawdown down when you hit a bear market, otherwise you are going to be eating capital. Given US Treasury Bonds are paying 2.5% then you are going to be reducing your pool of capital by 1.5% pa. Add in inflation and you won't have a lot left in 40 years.

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Re: retired at 37?

Post by Valuethinker » Mon Mar 31, 2014 4:50 am

jd88 wrote:
bhsince87 wrote: If you’re willing to live off say, $30k after tax per year, and you make $100k after tax, it adds up fast. $70k per year invested at 8% return gets you to a million or so in 10 years. Then you’re pretty much set. And 30k after tax isn't such a bad life these days.
The trick of course is actually making 100k after tax and spending 30k. Especially for someone young, most of the places where you make that kind of money tend to have very high COLs. I'm not too far from that 100/30 spread, but I live pretty frugally, which I'm happy with for now but could get tiring after a while. 30k in the Bay Area ain't such a bad life for a young single person, but most people would probably be pretty unhappy :)
$30k pa in the Bay Area? I am taking t hat as net after tax?

My friends in San Francisco don't have lavish apartments, but they pay Manhattan-like rents. $30k a year would be their *rent*. Or did you mean living in a cheaper community outside of commuter range? I don't know, but I imagine these are mostly relatively small towns, single family homes? In which case you've got the capital cost of owning that home OR you have a rental expense.

From what people say, 30k pa in Sacramento seems more doable?

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Re: retired at 37?

Post by Valuethinker » Mon Mar 31, 2014 4:53 am

bhsince87 wrote: If you’re willing to live off say, $30k after tax per year, and you make $100k after tax, it adds up fast. $70k per year invested at 8% return gets you to a million or so in 10 years. Then you’re pretty much set. And 30k after tax isn't such a bad life these days.
8% pa is a risky assumption re rate of return. With US Treasury Bonds yielding 2.5% say, stocks producing returns of 3-4.5% pa (ie 5.5-7.0% pa total return) seems feasible. 5.5% real return (to get you 8%) seems high. And that would be a 100% stock portfolio, which carries its own risks. Are you going to cut your cost of living in half the next time a 2008-09 rolls around?

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Re: retired at 37?

Post by Valuethinker » Mon Mar 31, 2014 5:03 am

tfb wrote:
livesoft wrote:Go to morningstar.com and look at "growth of" charts. You can make 14 charts from 2001-2014, 2002-2014, 2003-2014, … and then add them up.
Just did that. Total comes out to 25x for VTSMX. Saving $75k a year will get $1.9m. Beating the market with some lucky individual stocks will get more. He worked for the NYC government. There may be a pension as well.
If he made $100k a year could he possibly have saved $75k a year, living in greater NYC?
- cost of housing
- cost of commuting - maybe you could do without a car, one of the few national urban areas where that is feasible BUT if you live closer to the subway you pay more rent
- cost of food, heat, light etc. (all above national averages)
- taxes

Or did you mean that with 2 incomes, between them they could have saved $75k pa?

I find these calculations a bit obscure. If you retire at 38, say, and you don't want to outlive your money you could annuitize, but you'd need an impossibly large amount of money (depending on your income needs). Also there is inflation to factor in.

Presumably you are not eligible for full US Social Security at 67 if you retire at 38 and stop paying into the system? So, another factor.

There's lots of merit in 'downshifting'. Build up a significant lump sum, then downshift. As long as you don't draw on that lump sum until say your mid 50s or later, it will grow, and you'll be able to maintain your standard of living in retirement. Really then you are in the same position (ex taxes) as someone who inherits a sum of money in their 50s, except you made your own inheritance.

Whenever I have looked at these calculations it seemed to me that most people really need to keep working until their mid 50s, to avoid outliving their capital. If you get a bull market whilst you are saving, you can move that date forward. Conversely a bear market will move that back. Given between you and your spouse one of you could easily live until their mid 90s (if your partner is female, it's probably wise to work on the basis of 100).

With US Treasuries at 2.5% your maximum safe withdrawal rate is in fact 2.5% assuming you want to maintain your income (ignoring inflation, your buying power will be falling each year). Inflation makes it tougher because you can't do it just with TIPS bonds at the current real interest rates (if you go long enough out the curve you can). Losing SS, ie your best inflation protected income, makes it even worse.

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Re: retired at 37?

Post by Valuethinker » Mon Mar 31, 2014 5:06 am

Jfet wrote:If he invested heavy in either Apple or Tesla, he could easily have enough money to retire with just a few hundred thousand initially. Other than an inheritance this would be my guess.

Or he did some crazy plays in biotech. It isn't hard to get a 5 or 10 bagger there if you are lucky. We don't hear about the other 9 lawyers who lost everything betting....except maybe if you watch the Australian version of Rake.
Mid 2000s I had acquaintances who had made a lot of money in the tech bubble, either working for tech companies, or speculating in tech stocks. BUT a couple of them had discovered leverage to buy stocks. Either stocks on margin or mortgages/ personal loans. They got cremated in the bubble bust. This had happened before in the early 80s with oil and energy stocks.

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Re: retired at 37?

Post by Valuethinker » Mon Mar 31, 2014 5:12 am

dharrythomas wrote:I don't like the odds on 4% withdrawals starting at 37. That's a 50-60 year planning horizon. :shock:
Yes and when you chuck in what inflation at 2-2.5% pa is doing to your capital (and therefore reducing what the 4% buys) it looks really bad. What you don't want to be doing is retiring at 37 and then finding at 50 you cannot make ends meet any longer. You are likely to maximize your earnings potential in your 40s in your career.*

* I realize that many people make higher salaries in their 50s. What I observe around the office though is it is those more expensive middle manager and senior technical types who get the chop, first. It's not age discrimination per se (that would be illegal) but they are older than their bosses, possibly wiser, possibly seen as less 'willing', and they are expensive. So when it comes time to cut headcount...

In other words, although many people make higher incomes in their 50s than 40s, taking the *whole population* including those who lose their jobs, and either don't work again or 'consult' at much lower incomes, I am not sure 50-somethings (median) beat 40-somethings.

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Re: retired at 37?

Post by freddie » Mon Mar 31, 2014 6:54 am

No need to cut when a minor blip like 2008 comes along even with a 4% withdrawal much less a 3%. Imagine you have an 80/20 portfolio with 1 million dollars and 2008 comes around. You get 15k from divs and take 25k from the bonds.5 years later your portfolio is worth about the same as when you started. 2000-2002 would have been a lot more stressful with its prolonged downturn and not so rapid recovery. Of course it was also proceed by 5 years of insane growth so if you would have retired in 1995, you would have had 2 million instead of 1 million and that recession would have just put you back where you started. Granted most peoples stomaches would struggle with this but that is a different issue.

Going forward how will it work out? Who knows. Is 8% risky? Maybe. It is also less than what an 80/20 portfolio has returned for the past 100 or so years. It is also higher than he needs give todays inflation rates. Maybe we have another decade of 3% returns like 2000-2010. Maybe we bounce back to 10%. I am no where good enough of a market timer to figure out what the rates of everything will be in 5 years much less 10.

Valuethinker wrote:
bhsince87 wrote: If you’re willing to live off say, $30k after tax per year, and you make $100k after tax, it adds up fast. $70k per year invested at 8% return gets you to a million or so in 10 years. Then you’re pretty much set. And 30k after tax isn't such a bad life these days.
8% pa is a risky assumption re rate of return. With US Treasury Bonds yielding 2.5% say, stocks producing returns of 3-4.5% pa (ie 5.5-7.0% pa total return) seems feasible. 5.5% real return (to get you 8%) seems high. And that would be a 100% stock portfolio, which carries its own risks. Are you going to cut your cost of living in half the next time a 2008-09 rolls around?

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Re: retired at 37?

Post by Valuethinker » Mon Mar 31, 2014 7:01 am

freddie wrote:No need to cut when a minor blip like 2008 comes along even with a 4% withdrawal much less a 3%. Imagine you have an 80/20 portfolio with 1 million dollars and 2008 comes around. You get 15k from divs and take 25k from the bonds.5 years later your portfolio is worth about the same as when you started. 2000-2002 would have been a lot more stressful with its prolonged downturn and not so rapid recovery. Of course it was also proceed by 5 years of insane growth so if you would have retired in 1995, you would have had 2 million instead of 1 million and that recession would have just put you back where you started. Granted most peoples stomaches would struggle with this but that is a different issue.

Going forward how will it work out? Who knows. Is 8% risky? Maybe. It is also less than what an 80/20 portfolio has returned for the past 100 or so years.
What would your 8% assumption look like (after inflation) 1968-1980? 1929-1940? (note inflation worked *for* you in the Depression years). We've only got 100 years of data, it behooves us to check against *all* sub periods. In both those periods I suspect one would have severely depleted capital.

In the UK (which had a worse record on inflation than the US) plenty of people retired in say 1967 on a 'nice little pension' from investments they had been left. And had their standard of living crushed in the next 12 years.

It is also higher than he needs give todays inflation rates. Maybe we have another decade of 3% returns like 2000-2010. Maybe we bounce back to 10%. I am no where good enough of a market timer to figure out what the rates of everything will be in 5 years much less 10.
This is my argument you have to assume very conservatively on equity returns. Bond returns you more or less know (in nominal terms). If you have a withdrawal rate over say 3%, you've got a high chance of outliving your capital.

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Re: retired at 37?

Post by freddie » Mon Mar 31, 2014 7:58 am

Well the S&P 500 returned 8.5% from Jan 1968 to dec 1980 so my assumption of 8% would have been right on. In reality the real return would have been about 0 so the guy would have gone from 1 million to ~600k in real dollars. Sounds horrible right? Check back in another 18 years and at the end of that 30 year period he has 10 million real dollars. Pretty much the same thing happens with the 1929 case. You need to figure out the exact sequencing to see if you can survive long enough to get to the long term but the general point is that poor performance periods tend to be followed by good ones. If our guy gets 2% between 2013-2023, life isn't looking good but historically he is likely to get a period of overperformance from 2023-2033 to make up for it.

Would I retire at 37 and go with 4%? Heck no. I would work 3 more years and drop that number to 3.5% which drastically reduces the risk.

Valuethinker wrote:
What would your 8% assumption look like (after inflation) 1968-1980? 1929-1940? (note inflation worked *for* you in the Depression years). We've only got 100 years of data, it behooves us to check against *all* sub periods. In both those periods I suspect one would have severely depleted capital.

In the UK (which had a worse record on inflation than the US) plenty of people retired in say 1967 on a 'nice little pension' from investments they had been left. And had their standard of living crushed in the next 12 years.

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Re: retired at 37?

Post by SecretAsianMan » Mon Mar 31, 2014 9:01 am

Retread wrote:
ieee488 wrote:He claimed that he started working at age 23...
Graduated from law school by 23?? Very rare...
Bruce
Rare, perhaps, but not all that difficult. While in law school, I remember celebrating a classmate's 21st birthday.

I had enough credits to graduate college in 3 years and would've been 23 when I graduated law school if I had graduated early and then gone straight through. Thankfully, I did neither of those things and instead concentrated on enjoying my early-to-mid 20s. Best decision I ever made.

SAM

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Re: retired at 37?

Post by dstac » Mon Mar 31, 2014 9:47 am

Hate to not do my own math, but this is just so much easier (lazier?):

Mr. Money Mustache says: saving 50% of income means retirement in 17 working years. Assumes 5% real return and 4% withdrawal.
http://www.mrmoneymustache.com/2012/01/ ... etirement/

Complain about the assumptions all you want, but that's almost on the money with OP's case study.


Edited to add:
Note that the same tables at the link show a 15% savings rate will take 43yrs, aka 22 to 65 for many people.

I'd also add that I see this more as a financial independence metric rather than just a retirement number.

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Re: retired at 37?

Post by market timer » Mon Mar 31, 2014 10:12 am

Valuethinker wrote:
jd88 wrote:
bhsince87 wrote: If you’re willing to live off say, $30k after tax per year, and you make $100k after tax, it adds up fast. $70k per year invested at 8% return gets you to a million or so in 10 years. Then you’re pretty much set. And 30k after tax isn't such a bad life these days.
The trick of course is actually making 100k after tax and spending 30k. Especially for someone young, most of the places where you make that kind of money tend to have very high COLs. I'm not too far from that 100/30 spread, but I live pretty frugally, which I'm happy with for now but could get tiring after a while. 30k in the Bay Area ain't such a bad life for a young single person, but most people would probably be pretty unhappy :)
$30k pa in the Bay Area? I am taking t hat as net after tax?

My friends in San Francisco don't have lavish apartments, but they pay Manhattan-like rents. $30k a year would be their *rent*. Or did you mean living in a cheaper community outside of commuter range? I don't know, but I imagine these are mostly relatively small towns, single family homes? In which case you've got the capital cost of owning that home OR you have a rental expense.
The solution is having a roommate or two, not owning a car, and not dating.

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Re: retired at 37?

Post by jd88 » Mon Mar 31, 2014 10:31 am

market timer wrote:
Valuethinker wrote:
jd88 wrote:
bhsince87 wrote: If you’re willing to live off say, $30k after tax per year, and you make $100k after tax, it adds up fast. $70k per year invested at 8% return gets you to a million or so in 10 years. Then you’re pretty much set. And 30k after tax isn't such a bad life these days.
The trick of course is actually making 100k after tax and spending 30k. Especially for someone young, most of the places where you make that kind of money tend to have very high COLs. I'm not too far from that 100/30 spread, but I live pretty frugally, which I'm happy with for now but could get tiring after a while. 30k in the Bay Area ain't such a bad life for a young single person, but most people would probably be pretty unhappy :)
$30k pa in the Bay Area? I am taking t hat as net after tax?

My friends in San Francisco don't have lavish apartments, but they pay Manhattan-like rents. $30k a year would be their *rent*. Or did you mean living in a cheaper community outside of commuter range? I don't know, but I imagine these are mostly relatively small towns, single family homes? In which case you've got the capital cost of owning that home OR you have a rental expense.
The solution is having a roommate or two, not owning a car, and not dating.
Dating isn't that expensive assuming you aren't trying too hard to impress ;), but yes I have a roommate and don't own a car. But even then, rent + utilities is 21k/year. C'est la vie...

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Re: retired at 37?

Post by Super Hans » Mon Mar 31, 2014 1:39 pm

I've been a lawyer since 23, so I was especially curious and watched the video. This isn't exactly hard-hitting journalism. With no numbers, there's really not much intelligent to say about the piece.

I've never made less than $100k pa as a lawyer, except for a year of clerking for a judge. I left the firm for federal service before I would've been up (and passed over) for partner. I've maxed out the 401(k) and backdoor Roth IRA consistently, and I'm pretty cheap generally apart from a lot of travel. I'm spending about $30k pa presently. The cost of living in New York and then Washington hurt, and I definitely couldn't retire in this part of the country anytime soon. I probably could retire in a cheap place like Florida, but I'm not sure what I'd do all day. I confess working is a little bit fun sometimes, and the good alternatives seem expensive.

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Some more stuff to think about

Post by jimb_fromATL » Mon Mar 31, 2014 7:10 pm

ieee488 wrote: Where do I find a calculator where I can input saving $75K a year for 13 years in index funds and come out with enough money to retire?
livesoft wrote:Go to morningstar.com and look at "growth of" charts. You can make 14 charts from 2001-2014, 2002-2014, 2003-2014, … and then add them up.
The performance data published such as “ growth of $10K" over several years is for a single lump sum. So you could make an estimate that way. But In reality most people do dollar-cost-average by investing in increments throughout the year over a number of years – especially in 401(K)s and other employer sponsored plans like the lawyer did.

When the market is a volatile as it has been during the time he’s been investing, it could substantially change the amount you lose when the market goes down and the amount you gain when the market goes up. So the rate-of-return for DCA can be considerably different than the yearly historical data numbers might suggest.

To be a lot closer to real life numbers, you’d need to use a spreadsheet with estimates of his monthly contributions along and the monthly data for the index fund’s gains and losses. That’s pretty easy to download manually from Yahoo and other sources. (There’s also a software function in Google spreadsheets and VBA macros available for Excel to fetch the data directly into your spreadsheet for you.
He claimed he saved 1/2 salary every year.
Since he said he never made over $100K and that he contributed half his income including maxing his 401(k)s and sometimes IRAs, it wouldn’t come out anywhere near the same to use $75K per year as the average savings. At best it would be $50K, and probably not that much in the earlier years. The calculation would also need to reflect the limits for the tax-deferred accounts each year, since the tax savings would give more to invest in after-tax accounts.

Obviously he contributed a lot more than just the 401(k) and IRA maximum every year … assuming he was single some of that time. So there’d need to be more clarification whether he meant half his pre-tax income or half his take-home. Since they say that she doesn’t really have to work either, chances are she also maxed her 401(k) or other tax-advantaged plans and maybe more too.
Does the financial returns of the entire stock market between 2001 and 2014 make this possible?
Yep, and all he'd have to do is invest in something like the S&P 500 -- not any kind of magic, or systems, or blind luck -- even during a couple of bad market crashes during his short career.

Here's how it could work:

The contribution limits for 401(k) plans ranged from $10,500 in 2001 up to $17,500 for 2013. IRA limits were from $2000 up to $6500 for 2013.

If he invested the limit for a 401(k) every month in VFINX starting at the beginning of 2001, even with two bad years to start, it would grow to $344,690 by the end of 2013. If he invested the max for an IRA on a monthly basis it would be worth $112,487.

So one person could have $457,176 and two people contributing the max every year to 401(k)s could have $914,353 in their tax-deferred accounts alone even they only earned the S&P 500 APY.

But that’s not all they could have by a long shot. The total contributions would be $190,500 to each 401(k) and $63,500 to each IRA. That's an average of $1,221 per month to each 401(K) and $407 per month to each IRA.

If he averaged $90,000 per year income, $7500 per month, the tax-deferred contributions were only an average of 21.7% of his pay.

If he contributed just the same amount to taxable accounts every month – which is still less than the half his income he mentioned investing-- and reinvested dividends and paid tax on dividends out of pocket it would grow to another $457,176 by the end of 2013 .

So he could have another $914,353 alone. If they both contributed the same total amount per month to after-tax accounts, reinvesting the dividends and paying taxes on dividends out of pocket, they could have another $914,353 in savings in addition to the tax-advantaged accounts, for a total of about $1,828,706.

According to the video, they've been living very frugally. They may even have their house paid for by now. If neither works, they won't be paying FICA tax on their withdrawals from savings, and with what appears to be at least two children, they won't be paying much --if any-- income tax on the amount they'd need to have the same net after investment and taxes that they had when they were working.
Valuethinker wrote: In the UK (which had a worse record on inflation than the US) plenty of people retired in say 1967 on a 'nice little pension' from investments they had been left. And had their standard of living crushed in the next 12 years.
Betcha most of them weren't just 37 years old with law degrees. If this couple finds that they're having to withdraw too much of their retirement money, either he or his wife could work part-time just a few hours a week to make ends meet -- since they're already living a very frugal life style.

jimb

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