Can I retire early? 38 y/o

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VictoriaF
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Re: Can I retire early? 38 y/o

Post by VictoriaF » Sun Jan 11, 2015 11:56 am

goodyear35 wrote:
Valuethinker wrote:
obgyn65 wrote:To the OP : if you google this website, you will see that many participants (me included) believe that 4% SWR at age 38 is too high. I would go for 2 or 3% SwR. It does mean that you cannot retire, just try to reduce expenses a bit if you want to have enough until the age of 95 for example.
At current interest rates, real returns after tax are negative.

4% SWR is therefore a nonsense (it's a nonsense at 65 too, in fact at current interest rates and projected rates of return).

OP should look at 2% SWR *or less*. 60 years is a very long time to live off a lump sum of capital. Remembering OP won't even get full Social Security?

Americans also do not have universal state medical insurance? Therefore there's always the risk of some titanic medical bill for self or family.

Look over 60 year periods in history and what can happen-- inflation, depression, stagflation. Imagine retiring at 38 in 1968 and where you would have been in 1980 with stocks and bonds both returning c. -40% in real terms? At 4% SWR you would have eaten your capital (unless you kept taking out a fixed 4% nominal and therefore had a declining standard of living over much of the period).
Point taken. 2% SWR seems a little low to me (unless you are not willing to eat into the principal balance, but 3% seems conservative enough. Just my thoughts, I am sure everyone will have a different opinion on this.)
The difference between 2% and 3% is huge.

I agree with Valuethinker: your planning number should not be higher than 2%. It's not a matter of spending or not spending the principal, but a matter of having your money last for 60 years. Withdrawal rates are based on certain asset allocation assumptions, and in retirement your allocation to stocks should be on the low side. Interest rates will fluctuate, stock dividends will be cut, and unexpected expenses will happen. Even if you buy a brand new house now, it will require some capital repairs in the next 60 years. Also, your Social Security payments will be lower than of those who retire at a later age.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

Valuethinker
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Re: Can I retire early? 38 y/o

Post by Valuethinker » Sun Jan 11, 2015 12:16 pm

VictoriaF wrote:
goodyear35 wrote:
Valuethinker wrote:
obgyn65 wrote:To the OP : if you google this website, you will see that many participants (me included) believe that 4% SWR at age 38 is too high. I would go for 2 or 3% SwR. It does mean that you cannot retire, just try to reduce expenses a bit if you want to have enough until the age of 95 for example.
At current interest rates, real returns after tax are negative.

4% SWR is therefore a nonsense (it's a nonsense at 65 too, in fact at current interest rates and projected rates of return).

OP should look at 2% SWR *or less*. 60 years is a very long time to live off a lump sum of capital. Remembering OP won't even get full Social Security?

Americans also do not have universal state medical insurance? Therefore there's always the risk of some titanic medical bill for self or family.

Look over 60 year periods in history and what can happen-- inflation, depression, stagflation. Imagine retiring at 38 in 1968 and where you would have been in 1980 with stocks and bonds both returning c. -40% in real terms? At 4% SWR you would have eaten your capital (unless you kept taking out a fixed 4% nominal and therefore had a declining standard of living over much of the period).
Point taken. 2% SWR seems a little low to me (unless you are not willing to eat into the principal balance, but 3% seems conservative enough. Just my thoughts, I am sure everyone will have a different opinion on this.)
The difference between 2% and 3% is huge.

I agree with Valuethinker: your planning number should not be higher than 2%. It's not a matter of spending or not spending the principal, but a matter of having your money last for 60 years. Withdrawal rates are based on certain asset allocation assumptions, and in retirement your allocation to stocks should be on the low side. Interest rates will fluctuate, stock dividends will be cut, and unexpected expenses will happen. Even if you buy a brand new house now, it will require some capital repairs in the next 60 years. Also, your Social Security payments will be lower than of those who retire at a later age.

Victoria
And it gets worse. Inflation.

SS is the main bulwark for retired Americans against inflation. Housing equity is not reliably correlated to inflation. Neither are stocks. Certainly not any bonds but TIPS and ibonds.

At 2.5% pa for 60 years, your dollars are worth 22% of what they were when you started. Throw in that tax on investments does not adjust for inflation, and your capital position is shrinking *very* quickly.

And taxation policies *change*. Not always to your favour.

This talk of *any* SWR is all a bit specious until you get to 60 when you can take a view on:

1. your likely personal life expectancy

2. what assets you actually have

But 2%, as an absolute ceiling. If we have a big stock market crash, or interest rates go back to 5% then OP can think again.

Better to buy the house he wants, find a job that pays him some money to offset living expenses, and look at retiring in his early 50s. OR ratchet down his lifestyle expenses and resolve to live on less than 2% pa.

Valuethinker
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Re: Can I retire early? 38 y/o

Post by Valuethinker » Sun Jan 11, 2015 12:17 pm

goodyear35 wrote:
Compound wrote:
goodyear35 wrote: Also to be clear, I am not selling my business and didn't receive a windfall. I am closing my business. The money I have made was over several years of running the business. I saved roughly 80-90% of everything I made. So it didn't all come at once.
This is the only aspect that has given me any pause about the OP going ahead with retirement. It made me wonder, has the OP been through a major market downturn with significant assets at risk?

Seems to me that sequence of returns is very important in this scenario. If there is a 50% drop in equities and you lose $1M of your nest egg right off the bat, can you say with confidence that you will stay the course?

If you haven't been through a major downturn with those levels of assets, maybe consider delaying retirement until you're sure how you will behave.
I had investments in the market in 2008 and left them in the market throughout. Would I like a 50% downturn, no. Would I stay the course? Absolutely. I understand clearly the worst thing you can do when your investments are down is to cash them out.
And if you said this in Japan in 1990? You'd have lost 2/3rds of your money by now. That retirement would be feeling a bit thin, and you'd be 62. Probably at least 30 years to go.

Valuethinker
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Re: Can I retire early? 38 y/o

Post by Valuethinker » Sun Jan 11, 2015 12:19 pm

goodyear35 wrote: Point taken. 2% SWR seems a little low to me (unless you are not willing to eat into the principal balance, but 3% seems conservative enough. Just my thoughts, I am sure everyone will have a different opinion on this.)
Given interest rates which are below inflation and expected returns for stocks which could be anywhere from negative to +4% real, and uncertainty about tax regimes, future medical expenses etc, I would not make a forecast suggesting you could live above 2% pa. We are talking about planning for 62 years (remembering how life expectancies can move out).

Beth*
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Re: Can I retire early? 38 y/o

Post by Beth* » Sun Jan 11, 2015 12:23 pm

Is there a reason you need to make a permanent decision now?

It sounds like your business is shutting down so you will stop working at it for now. You have been economically very responsible and saved lots of money, more money than most people will amass in their lifetime. Firecalc tells you that you should be able to live on this money for the remainder of your expected lifespan. Congratulations!

Why don't you take a year or two or three off and then evaluate what you want to do after that? You definitely sound like someone who at a minimum needs a long rest. You didn't say what industry your business is in, but it's possible that people will approach you and ask you to consult for them or work for them either part-time or full-time if you were that successful working for yourself. Maybe at some point you'll want to accept one of these offers. You may find at the end of a couple of years that you are bored and want to start more actively looking for work and try to find something that has less pressure than running your own company. With you at home to participate in childcare and housework, your wife may decide that she wants to go back into the job market herself while you continue to stay home full-time. Or, you may find that your money is holding up fine, the Firecalc predictions still look good, and both you and your wife are happy to continue not working for pay.

If I were in your situation, I would close the business, plan to take a few years off, and then reevaluate at the end of that time. As long as you aren't doing something where your skills will get seriously out of date if you are out of the labor market for a few years, I don't see why this would be the least bit risky. Yes, there is sometimes a price to pay for being out of the labor market for a few years (look at studies of women who take time off to have children) but if you go back to work at some point you aren't looking at needing or wanting to earn a very high salary. You would be looking for something interesting to do that provided a little financial supplement to the savings you already have.

bhsince87
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Re: Can I retire early? 38 y/o

Post by bhsince87 » Sun Jan 11, 2015 1:23 pm

IMO, you're good to go. Even if you buy a 900k house, your remaining nest egg will be $3.1 million.

After your $24k rental income, you'll need $76k annually. That's less than a 2.5% annual withdrawal rate. You might be able to do that with interest and dividends only.

And at that level, dividend and cap gain tax rates should be zero. So it might make sense for you to stay stock heavy.

You might also want to consider converting your 401k to Roth IRA over time, and also contribute to a Roth regularly. Might as well shield as much as you can now for use 30-40 years down the road.
Retirement: When you reach a point where you have enough. Or when you've had enough.

rayson
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Re: Can I retire early? 38 y/o

Post by rayson » Sun Jan 11, 2015 1:37 pm

OP - You are financially independent by any standard. To retire or not to retire is a personal choice only you can decide on. Good luck!

bb
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Re: Can I retire early? 38 y/o

Post by bb » Sun Jan 11, 2015 9:06 pm

VictoriaF wrote:OP should look at 2% SWR *or less*. 60 years is a very long time to live off a lump sum of capital. Remembering OP won't even get full Social Security?
Victoria
If the road you are going down is to follow the path of a perpetual portfolio why not just say that? What's the
difference between the money having to last 60 years vs 100 years vs 200 years?

I believe even the perpetual portfolio's allow for a withdrawal greater than 2%.

This whole conversation is moot if there is flexibility in spending. I would much rather have money invested
in equities and take the risk of reducing spending or having to get any job to offset some of the expenses
rather than have a really high allocation to fixed income. Inflation is a much scarier prospect.
Last edited by bb on Sun Jan 11, 2015 10:01 pm, edited 1 time in total.

ge1
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Re: Can I retire early? 38 y/o

Post by ge1 » Sun Jan 11, 2015 9:21 pm

I'm probably just too conservative, but why would you remain 75% in equities in your situation? Wouldn't it make sense to bring your stocks down to at least 60%?

ripete
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Re: Can I retire early? 38 y/o

Post by ripete » Sun Jan 11, 2015 10:00 pm

Read a lot (not all) of these responses.
Couple of points
1) Just because you and your wife grew up with nothing doesn't mean your child will opt for nothing.
If you buy the 900K house and live in the fancy neighborhood, and you're surrounded by people who buy the fancy cars, go on the fancy vacations, buy the upscale clothes, etc. etc., well, it's very easy for you to steel yourself against those things, but your child might feel the brunt of peer pressure as she goes along the schooling from k-12. Now, I'm not saying she should totally cave into peer pressure, because learning to stand up for what you believe is very important, and the earlier you learn the lesson the better. All I'm saying is be prepared for some compromises along the way, as your daughter may grow up with a value system that is necessarily impacted by what she sees all around her, not withstanding her parents that is.
2) As has been mentioned 50 years + is an awful long time to try to map out how things will turn out. The only thing we know is that the market will tank at some point, so plan for that somehow.
3)You mention that you'll get 2.4K per month in rental, your cut after the 2500 mortgage and the 7500 divided by 3 people. But rents usually go up. So, that 2.4K should eventually go up, which is a good thing.

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Re: Can I retire early? 38 y/o

Post by RVD » Mon Jan 12, 2015 12:54 am

I would also revise the AA to less equity but that's just me. A 50% loss in the the stock market (37.5% loss in my portfolio) would really cause me to re-think retirement if my expenses were $100k/year after tax.

I have similar expenses as you (although I think I live a less frugal lifestyle) and according to my calculations I will hit around $3m when I'm 52 and can retire then.

goodyear35
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Re: Can I retire early? 38 y/o

Post by goodyear35 » Mon Jan 12, 2015 11:04 am

ge1 wrote:I'm probably just too conservative, but why would you remain 75% in equities in your situation? Wouldn't it make sense to bring your stocks down to at least 60%?
Yeah, that was one of my questions. I was suggesting a 75/25 stock/bond split but I had questioned that myself. Maybe 60/40 is a better split. At the same time, I do realize that stocks produce a great deal more real returns over time than bonds. If worse came to worse, I could find a job and supplement my income, but I am trying to plan around that.

goodyear35
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Re: Can I retire early? 38 y/o

Post by goodyear35 » Mon Jan 12, 2015 11:06 am

There are a lot of mixed opinions here. I think I may be more confused now than prior to posting, but I do seem to have an idea of worst case scenario and best case scenario. I do appreciate all of the feedback!

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VictoriaF
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Re: Can I retire early? 38 y/o

Post by VictoriaF » Mon Jan 12, 2015 3:19 pm

bb wrote:Seems like the potential responses are going to depend on a couple of basic assumptions:

- to what extent is spending flexible
- is it ok to spend down principle

Is a 50 year retirement automatically in the perpetual portfolio category where
as a 30 year retirement is not? There is uncertainty in retirement assets lasting
if principal is ever spent. I wonder if the folks that would suggest spending
2% or less have difficulty with defining how much money is enough. Presumably
most people with money invested in the stock market risk a lower standard of
living if returns turn out poorly.
The only perpetual portfolio I can think of is that of inflation-indexed annuities such as Social Security, SPIA, and some pensions, subject to the solvency of the payers. Everything else may not last indefinitely.

Most SWR studies assume portfolios with the 60/40 (stocks/bonds) AA. However, in retirement, some people do not want to take risk with stocks and reduce their AA to 30/70, 20/80, or even less. A portfolio consisting of mostly bonds requires a more conservative SWR.

"Enough" is not a stand-alone concept, and it must be considered in combination with "How Long" and "What For." Let's assume that new stem cell-based treatments become available that extend one's lifespan by 10 years and cost $0.5m. Thereby, "Enough" becomes $1m larger to accommodate the cost of the treatment and the expenses during additional ten years of life.

And so you have two extremes. You may die tomorrow, with little time to enjoy your assets. Or you may get a longer healthy life than the current life expectancy charts predict. It's quite impossible to prepare for every eventuality, and so we all, to some extent, choose some plausible scenarios and live accordingly.

Victoria
WINNER of the 2015 Boglehead Contest. | Every joke has a bit of a joke. ... The rest is the truth. (Marat F)

subham
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FIREcalc tax assumptions

Post by subham » Mon Jan 12, 2015 4:37 pm

I tried using friecalc for the first time and did not understand how it incorporates Tax information. Or is it showing pre-tax dollars and so you have to input pre-tax spending expectations?

JLJL
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Re: Can I retire early? 38 y/o

Post by JLJL » Mon Jan 12, 2015 7:04 pm

goodyear35 wrote:There are a lot of mixed opinions here. I think I may be more confused now than prior to posting, but I do seem to have an idea of worst case scenario and best case scenario. I do appreciate all of the feedback!
I don't believe the opinions are really all that mixed, despite all the debate. The results are mixed. Some are analyzing whether you will run out of money if you stop working dead in your tracks and never earn another penny as long as you live, and spend heavily without further future consideration of your account balances. If you do that, you might. I hardly think opinions would be mixed about whether or not you could securely retire today, as long as you are giving some consideration to your future spending and whether or not your household is able to scrape together a few supplamental dollars in the coming ?60? years should the outlook change.

subham
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Re: FIREcalc tax assumptions

Post by subham » Mon Jan 12, 2015 7:58 pm

subham wrote:I tried using friecalc for the first time and did not understand how it incorporates Tax information. Or is it showing pre-tax dollars and so you have to input pre-tax spending expectations?

probably answering my own question, looks like one needs to deduct taxes from assets and include pre-tax spending to take tax into account?

http://www.cfiresim.com/docs/faq.php

ramsfan
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Re: Can I retire early? 38 y/o

Post by ramsfan » Mon Jan 12, 2015 11:07 pm

goodyear35 wrote:
ge1 wrote:I'm probably just too conservative, but why would you remain 75% in equities in your situation? Wouldn't it make sense to bring your stocks down to at least 60%?
Yeah, that was one of my questions. I was suggesting a 75/25 stock/bond split but I had questioned that myself. Maybe 60/40 is a better split. At the same time, I do realize that stocks produce a great deal more real returns over time than bonds. If worse came to worse, I could find a job and supplement my income, but I am trying to plan around that.
Makes no sense to me. You seem interested in taking risk on equity side, when you clearly do NOT need to. You rationale is "I can always get a job and supplement income". Why not go 40/60, retire now and call it a day.

you do not NEED to take investment risk, so why do it. $3.8Million is a lot of jack. Why put yourself in a position for it to drop to half that or worse...?

randomguy
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Re: Can I retire early? 38 y/o

Post by randomguy » Mon Jan 12, 2015 11:16 pm

ramsfan wrote:
goodyear35 wrote:
ge1 wrote:I'm probably just too conservative, but why would you remain 75% in equities in your situation? Wouldn't it make sense to bring your stocks down to at least 60%?
Yeah, that was one of my questions. I was suggesting a 75/25 stock/bond split but I had questioned that myself. Maybe 60/40 is a better split. At the same time, I do realize that stocks produce a great deal more real returns over time than bonds. If worse came to worse, I could find a job and supplement my income, but I am trying to plan around that.
Makes no sense to me. You seem interested in taking risk on equity side, when you clearly do NOT need to. You rationale is "I can always get a job and supplement income". Why not go 40/60, retire now and call it a day.

you do not NEED to take investment risk, so why do it. $3.8Million is a lot of jack. Why put yourself in a position for it to drop to half that or worse...?
He needs money for 50 years. He can't go hyper conservative. Some where in the 80/20 to 60/40 range is what makes sense for a 38 year old with a 50 year time frame. That extra .75% you get by upping your stock allocation adds up to real money over 30 years. Being too conservative now exposes you to risk later when you are less able to adapt (i.e. getting a job a 40 is easy. Getting one at 60 might not be so easy). You can debate if you will sleep better losing 40% with a 80/20 versus a 30% with a 60/40. And you can also debate when to get more conservative. If stocks go up 30% over 2 years right after retirement, you can make a good argument for dropping your AA (think of it as keeping your stock allocation fixed in real dollar terms).

William Lichter
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Re: Can I retire early? 38 y/o

Post by William Lichter » Tue Jan 13, 2015 8:32 am

Just out of curiosity, what business were you in to make so much money? I'm always interested in learning about success stories.

delta_26
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Re: Can I retire early? 38 y/o

Post by delta_26 » Tue Jan 13, 2015 9:25 am

bertie wooster wrote:Living in Dallas for the rest of your life would be awful. I do not recommend that option.
Agreed. So move to Austin!

But don't Dallas my Austin...

goodyear35
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Re: Can I retire early? 38 y/o

Post by goodyear35 » Tue Jan 13, 2015 11:51 am

Beth* wrote:Is there a reason you need to make a permanent decision now?

It sounds like your business is shutting down so you will stop working at it for now. You have been economically very responsible and saved lots of money, more money than most people will amass in their lifetime. Firecalc tells you that you should be able to live on this money for the remainder of your expected lifespan. Congratulations!

Why don't you take a year or two or three off and then evaluate what you want to do after that? You definitely sound like someone who at a minimum needs a long rest. You didn't say what industry your business is in, but it's possible that people will approach you and ask you to consult for them or work for them either part-time or full-time if you were that successful working for yourself. Maybe at some point you'll want to accept one of these offers. You may find at the end of a couple of years that you are bored and want to start more actively looking for work and try to find something that has less pressure than running your own company. With you at home to participate in childcare and housework, your wife may decide that she wants to go back into the job market herself while you continue to stay home full-time. Or, you may find that your money is holding up fine, the Firecalc predictions still look good, and both you and your wife are happy to continue not working for pay.

If I were in your situation, I would close the business, plan to take a few years off, and then reevaluate at the end of that time. As long as you aren't doing something where your skills will get seriously out of date if you are out of the labor market for a few years, I don't see why this would be the least bit risky. Yes, there is sometimes a price to pay for being out of the labor market for a few years (look at studies of women who take time off to have children) but if you go back to work at some point you aren't looking at needing or wanting to earn a very high salary. You would be looking for something interesting to do that provided a little financial supplement to the savings you already have.
It is likely that at some point I will "want" to do something, but at the same time, I want to plan that I "have" to do nothing. Meaning, what I make going forward, I want it to count as 0, just in case I want to do nothing (in terms of business).

goodyear35
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Re: Can I retire early? 38 y/o

Post by goodyear35 » Tue Jan 13, 2015 11:52 am

bhsince87 wrote:IMO, you're good to go. Even if you buy a 900k house, your remaining nest egg will be $3.1 million.

After your $24k rental income, you'll need $76k annually. That's less than a 2.5% annual withdrawal rate. You might be able to do that with interest and dividends only.

And at that level, dividend and cap gain tax rates should be zero. So it might make sense for you to stay stock heavy.

You might also want to consider converting your 401k to Roth IRA over time, and also contribute to a Roth regularly. Might as well shield as much as you can now for use 30-40 years down the road.
Thanks for your input. Definitely agree on contributing to the Roth.

goodyear35
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Re: Can I retire early? 38 y/o

Post by goodyear35 » Tue Jan 13, 2015 11:56 am

ramsfan wrote:
goodyear35 wrote:
ge1 wrote:I'm probably just too conservative, but why would you remain 75% in equities in your situation? Wouldn't it make sense to bring your stocks down to at least 60%?
Yeah, that was one of my questions. I was suggesting a 75/25 stock/bond split but I had questioned that myself. Maybe 60/40 is a better split. At the same time, I do realize that stocks produce a great deal more real returns over time than bonds. If worse came to worse, I could find a job and supplement my income, but I am trying to plan around that.
Makes no sense to me. You seem interested in taking risk on equity side, when you clearly do NOT need to. You rationale is "I can always get a job and supplement income". Why not go 40/60, retire now and call it a day.

you do not NEED to take investment risk, so why do it. $3.8Million is a lot of jack. Why put yourself in a position for it to drop to half that or worse...?
I don't think a 40/60 portfolio would allow me to withdraw enough to maintain my lifestyle. I highly doubt I could do a SWR of 3-4% on a 40/60 portfolio in favor of bonds. If that were possible, I do agree it's a lot less risky.

goodyear35
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Re: Can I retire early? 38 y/o

Post by goodyear35 » Tue Jan 13, 2015 11:57 am

William Lichter wrote:Just out of curiosity, what business were you in to make so much money? I'm always interested in learning about success stories.
Ecommerce.

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siamond
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Re: Can I retire early? 38 y/o

Post by siamond » Tue Jan 13, 2015 4:31 pm

goodyear35 wrote:I don't think a 40/60 portfolio would allow me to withdraw enough to maintain my lifestyle. I highly doubt I could do a SWR of 3-4% on a 40/60 portfolio in favor of bonds. If that were possible, I do agree it's a lot less risky.
You are absolutely correct. Multiple posters on this thread do not seem to consider your age and life expectancy (50+ years in front of you). Folks, he's 38, not 70...

ramsfan
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Re: Can I retire early? 38 y/o

Post by ramsfan » Tue Jan 13, 2015 9:02 pm

goodyear35 wrote:
ramsfan wrote:
goodyear35 wrote:
ge1 wrote:I'm probably just too conservative, but why would you remain 75% in equities in your situation? Wouldn't it make sense to bring your stocks down to at least 60%?
Yeah, that was one of my questions. I was suggesting a 75/25 stock/bond split but I had questioned that myself. Maybe 60/40 is a better split. At the same time, I do realize that stocks produce a great deal more real returns over time than bonds. If worse came to worse, I could find a job and supplement my income, but I am trying to plan around that.
Makes no sense to me. You seem interested in taking risk on equity side, when you clearly do NOT need to. You rationale is "I can always get a job and supplement income". Why not go 40/60, retire now and call it a day.

you do not NEED to take investment risk, so why do it. $3.8Million is a lot of jack. Why put yourself in a position for it to drop to half that or worse...?
I don't think a 40/60 portfolio would allow me to withdraw enough to maintain my lifestyle. I highly doubt I could do a SWR of 3-4% on a 40/60 portfolio in favor of bonds. If that were possible, I do agree it's a lot less risky.
If you don't mind me playing this out, I understand your thinking.

Try another angle on it. If you go say 80/20, and the market tanks 50%, how is your 3-4 % SWR looking? Your $3.8Million will be under $2Million. How would you feel about that.
The downside is what if market goes up 50%. If you are at 40/60, you lost out on maybe $800k of upside, but your portfolio still would grow to ~$4.7 and you are in great shape.

To me, and i would understand why others would disagree, but to me, you don't NEED to take the kind of risks you are talking about. That added 0.75% return expectation is simply that, an expectation, and the downside is substantial.

Tough call man, hard to look at this with such a long horizon, and so many competing demands.

Wish you all the best, congrats on the position you are in!

snowblinded
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Re: Can I retire early? 38 y/o

Post by snowblinded » Tue Jan 13, 2015 10:43 pm

You have an 8-month-old. My experience is that kids get more expensive, not less, so your current projections on expenses may be underestimating the future in ways you can't yet imagine (ranging from her having special talents you want to encourage that cost money, to future special needs she may have that you may have to accommodate). Even if you can manage to account for those in your current projected budget or by making hard decisions, there's lifestyle creep that can happen from trying to keep up.

I bring this up because you might want to consider whether it is easier to work another year or two (while you are presumably nearer your peak productive earning capacity) than it would be to find out that you're coming up short in 15 years and have to re-tool at 53. If the business has run its course, then its maybe an easier decision to walk away now rather than be a caretaker through its decline, but if you can't print money for another year or two, it may help give buffer for some of those future possibilities.

Not intending to discourage you, just encouraging you to not succumb to a failure of imagination around real-life risk outside the market.

randomguy
Posts: 6296
Joined: Wed Sep 17, 2014 9:00 am

Re: Can I retire early? 38 y/o

Post by randomguy » Tue Jan 13, 2015 11:50 pm

ramsfan wrote:
If you don't mind me playing this out, I understand your thinking.

Try another angle on it. If you go say 80/20, and the market tanks 50%, how is your 3-4 % SWR looking? Your $3.8Million will be under $2Million. How would you feel about that.
The downside is what if market goes up 50%. If you are at 40/60, you lost out on maybe $800k of upside, but your portfolio still would grow to ~$4.7 and you are in great shape.

To me, and i would understand why others would disagree, but to me, you don't NEED to take the kind of risks you are talking about. That added 0.75% return expectation is simply that, an expectation, and the downside is substantial.

Tough call man, hard to look at this with such a long horizon, and so many competing demands.

Wish you all the best, congrats on the position you are in!
The difference is more like 1.5% between 80/20 and 40/60. Lets look at some firecalc numbers
1 million dollars/40k year, 50 year time frame.

40% stocks = 50% success rate
80% stocks = 84% success rate.
Thats is pretty huge. And note most of the time with the 40% case, you have less money than you started with. That is a very stressful way to live. The 80/20 guy on the other hand has 4x as much as they started with. That makes life a lot less stressful when your 90.

Now maybe 80/20 is a bit too aggressive
60/40 75%
70/30 81%

would be my personal vote. The other thing is that it is much better to take risks when your younger. Going back to work at 45 versus 60 is a lot easier. If your aggressive with stocks early and get lucky(imagine you hold 80/20 and the portfolio doubles over your first 10 years), you can be much more conservative later in life. YMMV.

goodyear35
Posts: 68
Joined: Wed Jan 18, 2012 12:58 pm

Re: Can I retire early? 38 y/o

Post by goodyear35 » Wed Jan 14, 2015 10:24 am

ramsfan wrote:
goodyear35 wrote:
ramsfan wrote:
goodyear35 wrote:
ge1 wrote:I'm probably just too conservative, but why would you remain 75% in equities in your situation? Wouldn't it make sense to bring your stocks down to at least 60%?
Yeah, that was one of my questions. I was suggesting a 75/25 stock/bond split but I had questioned that myself. Maybe 60/40 is a better split. At the same time, I do realize that stocks produce a great deal more real returns over time than bonds. If worse came to worse, I could find a job and supplement my income, but I am trying to plan around that.
Makes no sense to me. You seem interested in taking risk on equity side, when you clearly do NOT need to. You rationale is "I can always get a job and supplement income". Why not go 40/60, retire now and call it a day.

you do not NEED to take investment risk, so why do it. $3.8Million is a lot of jack. Why put yourself in a position for it to drop to half that or worse...?
I don't think a 40/60 portfolio would allow me to withdraw enough to maintain my lifestyle. I highly doubt I could do a SWR of 3-4% on a 40/60 portfolio in favor of bonds. If that were possible, I do agree it's a lot less risky.
If you don't mind me playing this out, I understand your thinking.

Try another angle on it. If you go say 80/20, and the market tanks 50%, how is your 3-4 % SWR looking? Your $3.8Million will be under $2Million. How would you feel about that.
The downside is what if market goes up 50%. If you are at 40/60, you lost out on maybe $800k of upside, but your portfolio still would grow to ~$4.7 and you are in great shape.

To me, and i would understand why others would disagree, but to me, you don't NEED to take the kind of risks you are talking about. That added 0.75% return expectation is simply that, an expectation, and the downside is substantial.

Tough call man, hard to look at this with such a long horizon, and so many competing demands.

Wish you all the best, congrats on the position you are in!
I definitely see your side of it. But I still think I would be on the light side with 40/60 in favor of bonds. Maybe something like 60/40 in favor of stocks would be more plausible. But as I have said, I really don't know the correct answer.

I think another thing that is being overlooked here is I gave a scenario of a 4% SWR. If I had a $900K house that would leave me with $2.9M in taxable accounts and $200K in 401K. If I did a SWR of 3% on $2.9M, that would give me $87K per year, pre tax and roughly $74K post tax. I will also have another $2K per month net from rental income which puts me at about $98K per year post tax. That provides $8,162 per month in net income. From those numbers, it works. But on the other hand, some people think 3% SWR is too aggressive, so that is where I am questioning myself a little.

goodyear35
Posts: 68
Joined: Wed Jan 18, 2012 12:58 pm

Re: Can I retire early? 38 y/o

Post by goodyear35 » Wed Jan 14, 2015 10:29 am

randomguy wrote:
ramsfan wrote:
If you don't mind me playing this out, I understand your thinking.

Try another angle on it. If you go say 80/20, and the market tanks 50%, how is your 3-4 % SWR looking? Your $3.8Million will be under $2Million. How would you feel about that.
The downside is what if market goes up 50%. If you are at 40/60, you lost out on maybe $800k of upside, but your portfolio still would grow to ~$4.7 and you are in great shape.

To me, and i would understand why others would disagree, but to me, you don't NEED to take the kind of risks you are talking about. That added 0.75% return expectation is simply that, an expectation, and the downside is substantial.

Tough call man, hard to look at this with such a long horizon, and so many competing demands.

Wish you all the best, congrats on the position you are in!
The difference is more like 1.5% between 80/20 and 40/60. Lets look at some firecalc numbers
1 million dollars/40k year, 50 year time frame.

40% stocks = 50% success rate
80% stocks = 84% success rate.
Thats is pretty huge. And note most of the time with the 40% case, you have less money than you started with. That is a very stressful way to live. The 80/20 guy on the other hand has 4x as much as they started with. That makes life a lot less stressful when your 90.

Now maybe 80/20 is a bit too aggressive
60/40 75%
70/30 81%

would be my personal vote. The other thing is that it is much better to take risks when your younger. Going back to work at 45 versus 60 is a lot easier. If your aggressive with stocks early and get lucky(imagine you hold 80/20 and the portfolio doubles over your first 10 years), you can be much more conservative later in life. YMMV.
After the responses and running numbers myself, I was looking more in the 70/30 or 60/40 range. I think this would probably make the most sense. There is pause on my part because the market seems to be at a relatively high valuation right now. On the other hand, I am not trying to time the market. As of today, I only have $1M on my investments in the market (was using the rest for business capital, etc.), the rest is on the sidelines.

goaties
Posts: 260
Joined: Fri Jan 29, 2010 4:15 pm

Re: Can I retire early? 38 y/o

Post by goaties » Wed Jan 14, 2015 11:40 am

I retired at 38. I do not have children or a spouse. However, two things strike me:
1) Is your wife on board with a possible scale-back of lifestyle should that become necessary (say, a long downturn in markets shrinks your nest egg, or there's a huge medical expense, or one of your parents requires expensive, lengthy, Medicare-ineligible care, or, or, or...)?
2) Are you prepared to be rather lonely? If your wife is still working, you will not have (m)any playmates your own age. I have found this to be the most difficult thing.

Financially it appears you are ready. It's the "soft" stuff I would ask you to think about. I agree with other posters in suggesting that you think of yourself as taking a break, not as retiring completely.

randomguy
Posts: 6296
Joined: Wed Sep 17, 2014 9:00 am

Re: Can I retire early? 38 y/o

Post by randomguy » Wed Jan 14, 2015 11:50 am

goodyear35 wrote:
After the responses and running numbers myself, I was looking more in the 70/30 or 60/40 range. I think this would probably make the most sense. There is pause on my part because the market seems to be at a relatively high valuation right now. On the other hand, I am not trying to time the market. As of today, I only have $1M on my investments in the market (was using the rest for business capital, etc.), the rest is on the sidelines.
It is only in retrospect that you decide a PE10 is high or low. In 1992 the market was at about 20 and people were talking about after ~10 years of gains we were due for a big correction. The next 7 years were some of the best investing ever. Other people look at todays 26 and say yeah that is historically high. But once you account for the changes in good will accounting (PE10s are ~25% higher do to it) and the low interest rates stocks are fairly valued. Some go the 6 years without a 20% correction is above average. Others go 2011 19% correction with in spiting distance of 20% and then a 3 year bull market is pretty average and another 1-2 years isn't crazy talk.

We haven't hit the extremes (the 40s in early 2000 would be over 50 with todays accounting) of overvalued or undervalued (the 15 or so in early 2009), that acting on is a no brainer. Sitting at something like 30/70 or 40/60 until the next 20%+ correction isn't totally insane but I am guessing on average it is a losing strategy. But you don't get average results. You have to deal with the one case you pick out.

goodyear35
Posts: 68
Joined: Wed Jan 18, 2012 12:58 pm

Re: Can I retire early? 38 y/o

Post by goodyear35 » Wed Jan 14, 2015 12:09 pm

goaties wrote:I retired at 38. I do not have children or a spouse. However, two things strike me:
1) Is your wife on board with a possible scale-back of lifestyle should that become necessary (say, a long downturn in markets shrinks your nest egg, or there's a huge medical expense, or one of your parents requires expensive, lengthy, Medicare-ineligible care, or, or, or...)?
2) Are you prepared to be rather lonely? If your wife is still working, you will not have (m)any playmates your own age. I have found this to be the most difficult thing.

Financially it appears you are ready. It's the "soft" stuff I would ask you to think about. I agree with other posters in suggesting that you think of yourself as taking a break, not as retiring completely.
1.) Yes, wife is on board as well. We share similar thoughts about money, so we don't mind scaling back if need be.

2.) The business I am in now, I have little interaction with people. We do have friends over on the weekends and things like that. I am sure I will still find something to occupy my time, but I have the same concerns as you about getting bored. I would be lying if that didn't cross my mind.

goodyear35
Posts: 68
Joined: Wed Jan 18, 2012 12:58 pm

Re: Can I retire early? 38 y/o

Post by goodyear35 » Wed Jan 14, 2015 12:10 pm

randomguy wrote:
goodyear35 wrote:
After the responses and running numbers myself, I was looking more in the 70/30 or 60/40 range. I think this would probably make the most sense. There is pause on my part because the market seems to be at a relatively high valuation right now. On the other hand, I am not trying to time the market. As of today, I only have $1M on my investments in the market (was using the rest for business capital, etc.), the rest is on the sidelines.
It is only in retrospect that you decide a PE10 is high or low. In 1992 the market was at about 20 and people were talking about after ~10 years of gains we were due for a big correction. The next 7 years were some of the best investing ever. Other people look at todays 26 and say yeah that is historically high. But once you account for the changes in good will accounting (PE10s are ~25% higher do to it) and the low interest rates stocks are fairly valued. Some go the 6 years without a 20% correction is above average. Others go 2011 19% correction with in spiting distance of 20% and then a 3 year bull market is pretty average and another 1-2 years isn't crazy talk.

We haven't hit the extremes (the 40s in early 2000 would be over 50 with todays accounting) of overvalued or undervalued (the 15 or so in early 2009), that acting on is a no brainer. Sitting at something like 30/70 or 40/60 until the next 20%+ correction isn't totally insane but I am guessing on average it is a losing strategy. But you don't get average results. You have to deal with the one case you pick out.
I agree with you 100%. The market could go on to have solid gains for the next 3-5 years without blinking. I am definitely not going to try and time the market.

subham
Posts: 168
Joined: Wed Oct 01, 2014 1:01 pm

Re: Can I retire early? 38 y/o

Post by subham » Wed Jan 14, 2015 1:54 pm

randomguy wrote:
The difference is more like 1.5% between 80/20 and 40/60. Lets look at some firecalc numbers
1 million dollars/40k year, 50 year time frame.

40% stocks = 50% success rate
80% stocks = 84% success rate.
Thats is pretty huge. And note most of the time with the 40% case, you have less money than you started with. That is a very stressful way to live. The 80/20 guy on the other hand has 4x as much as they started with. That makes life a lot less stressful when your 90.

Now maybe 80/20 is a bit too aggressive
60/40 75%
70/30 81%

would be my personal vote. The other thing is that it is much better to take risks when your younger. Going back to work at 45 versus 60 is a lot easier. If your aggressive with stocks early and get lucky(imagine you hold 80/20 and the portfolio doubles over your first 10 years), you can be much more conservative later in life. YMMV.
I am glad I came across Firecalc as I always wondered how I would fare if I invested at different times in the market of the past.

However, probably this is obvious to the users, I am afraid Firecalc is severely limited in the number of realizations to gain any statistical confidence. For example with 50 year time horizon, you only get 90 years worth of trials/realizations. I understand this is as real as it gets based on the true market performance of the past but it goes smack in the wisdom that "past performance is not representative of the future". It may be better to try the montecarlo simulations?

Rolyatroba
Posts: 206
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Re: Can I retire early? 38 y/o

Post by Rolyatroba » Wed Jan 14, 2015 3:08 pm

One thing that hasn't been focused on enough in this thread is sequence of returns risk, particularly in the first 15-20 years of a 50 year horizon.

My belief is that over a 50 year period, you can expect a better than 4% annual return (if not, there will be bigger problems to worry about, which may include having to defend against looters! :happy ).

So, if I were in this situation (and I'm actually close to that but older), planning for the sequence risk is the correct course of action.

Wade Pfau has numerous blog posts and papers on this, with ideas to help guard against such risk (https://www.google.com/search?q=%22sequ ... 1&ie=UTF-8)

My personal plan takes many of his suggestions into account:

1) Start with an AA with higher fixed income than you might initially allocate, then gradually increase the stock allocation over time (rising stock allocation glidepath)

2) Tilt 10-15% of portfolio to REIT. Relatively high, low-sigma yield to bolster the FI portion of return (mitigating sales of principal to reap return).

3) May not apply to you, but I'll be 62 within a few years of my early retirement, and plan to use a HECM reverse mortgage (responsibly!) (http://www.onefpa.org/journal/Pages/Sta ... tions.aspx)

EDIT: Oh, and i-orp.com is one of the best planning tools I've come across. It's free, check it out.

3FundFan
Posts: 19
Joined: Sun Oct 12, 2014 8:14 pm

Re: Can I retire early? 38 y/o

Post by 3FundFan » Wed Jan 14, 2015 3:55 pm

siamond wrote:
goodyear35 wrote:I don't think a 40/60 portfolio would allow me to withdraw enough to maintain my lifestyle. I highly doubt I could do a SWR of 3-4% on a 40/60 portfolio in favor of bonds. If that were possible, I do agree it's a lot less risky.
You are absolutely correct. Multiple posters on this thread do not seem to consider your age and life expectancy (50+ years in front of you). Folks, he's 38, not 70...
Yes he's only 38, but we're also talking about roughly $4M. The question I keep coming back to, and I don't think it's been asked yet, is whether it's more important to the OP to retire ASAP, or whether it's more important to know he can maintain his current lifestyle when he retires. The former may require reducing expenses a bit, but I don't think so. I still think he can retire now and not have to change anything, but I may not be as conservative as others.

goodyear35
Posts: 68
Joined: Wed Jan 18, 2012 12:58 pm

Re: Can I retire early? 38 y/o

Post by goodyear35 » Thu Jan 15, 2015 11:29 am

Rolyatroba wrote:One thing that hasn't been focused on enough in this thread is sequence of returns risk, particularly in the first 15-20 years of a 50 year horizon.

My belief is that over a 50 year period, you can expect a better than 4% annual return (if not, there will be bigger problems to worry about, which may include having to defend against looters! :happy ).

So, if I were in this situation (and I'm actually close to that but older), planning for the sequence risk is the correct course of action.

Wade Pfau has numerous blog posts and papers on this, with ideas to help guard against such risk (https://www.google.com/search?q=%22sequ ... 1&ie=UTF-8)

My personal plan takes many of his suggestions into account:

1) Start with an AA with higher fixed income than you might initially allocate, then gradually increase the stock allocation over time (rising stock allocation glidepath)

2) Tilt 10-15% of portfolio to REIT. Relatively high, low-sigma yield to bolster the FI portion of return (mitigating sales of principal to reap return).

3) May not apply to you, but I'll be 62 within a few years of my early retirement, and plan to use a HECM reverse mortgage (responsibly!) (http://www.onefpa.org/journal/Pages/Sta ... tions.aspx)

EDIT: Oh, and i-orp.com is one of the best planning tools I've come across. It's free, check it out.
Between a house that is $900K and a commercial building I own that is $250K (my equity), I do have real estate investments of roughly 20-25% already.

I will check out i-orp.com.

Thanks

goodyear35
Posts: 68
Joined: Wed Jan 18, 2012 12:58 pm

Re: Can I retire early? 38 y/o

Post by goodyear35 » Thu Jan 15, 2015 11:31 am

3FundFan wrote:
siamond wrote:
goodyear35 wrote:I don't think a 40/60 portfolio would allow me to withdraw enough to maintain my lifestyle. I highly doubt I could do a SWR of 3-4% on a 40/60 portfolio in favor of bonds. If that were possible, I do agree it's a lot less risky.
You are absolutely correct. Multiple posters on this thread do not seem to consider your age and life expectancy (50+ years in front of you). Folks, he's 38, not 70...
Yes he's only 38, but we're also talking about roughly $4M. The question I keep coming back to, and I don't think it's been asked yet, is whether it's more important to the OP to retire ASAP, or whether it's more important to know he can maintain his current lifestyle when he retires. The former may require reducing expenses a bit, but I don't think so. I still think he can retire now and not have to change anything, but I may not be as conservative as others.
I would rather retire now, and if need be reduce expenses a little bit. When I say "retire", I really mean not have to worry about making another dime in my lifetime as the worst case scenario. And if I do decide to make income in the future, its all gravy.

goodyear35
Posts: 68
Joined: Wed Jan 18, 2012 12:58 pm

Re: Can I retire early? 38 y/o

Post by goodyear35 » Tue May 15, 2018 10:38 pm

goodyear35 wrote:
Fri Jan 09, 2015 2:56 pm
Happy Friday!

I have been running a successful business over the past few years - the landscape has changed drastically and it's time to close the doors. Would love some insight from fellow Bogleheads on if I have enough to "retire"? Retirement to me will be the ability to pick and choose what I wish to do with my time. Whether its spend time with my family, enjoy a hobby, read books, travel, or even run a side business (although I don't want to factor this in).

Age: 38, + wife and daughter
Debt: None
Taxable Accounts: $3.8M (need to buy home, see below)
Allocations: 75% stocks / 25% bonds (is this a good mix?)
Non-taxable Account (401K): 200K
529-plan: $10K (Daughter is 8 months old. We plan on contributing to this each month and is included in our monthly expenses going forward)
Commercial Building: I own a commercial building that brings in $2K per month in rental income after taxes and reserves (newly remodeled, roof, etc)
Home: We will be buying a home shortly, paying all cash using money from the $3.8M Taxable account listed above. That brings up another question, how much can we spend on our home? Would like to spend up to $900K but we could definitely lower it if needed. At $900K, that would bring our Taxable Account to $2.9M. Again, we are flexible on this amount but $900K seems to be about what it will take to find what we are looking for.
Monthly Expenses: $8,000

The one big concern I have is lets say our SWR is 4% on $2.9M, that is roughly $116K per year before taxes, and about $98K after taxes assuming 15% capital gains taxes (is that a safe assumption?). What happens if the market drops 50% within the next few years and now our $2.9M taxable account is $1.45M. If this did happen, I am assuming we would withdraw our living expenses from our bond holdings and not touch the stocks until the market goes back up? How is that situation best handled?

Hopefully this provides enough information to answer the question, can I retire?


Hello to all who helped tremendously. I know most of you love the year or in this case 3 year update. I decided not to retire and instead developed a partnership with a builder where we build custom luxury spec homes, which is doing well. Here is an update of the numbers since 2015, three years later.

Age: 41 + wife and 2 children (2 and 4)
Debt: None
Taxable Accounts: $1.77M
Non-taxable Accounts (401K): 280K
529-plan: $25K for Daugter and $20K for Son
Commercial Building: Sold and had a net gain of $1.15M after realtor fees and taxes (currently in cash)
Home: $1M
Business venture: 430K owed to me plus interest
Loan owed to me from business: $550K plus 12% interest
Loan owed to me on interest only: $185K plus 2.8% interest ongoing
Various bank accounts: $150K
TOTAL: $5,560,000

Over three years have gone from roughly $4m net worth to $5.5m based on business activity and selling the office building.

Hope this helps others!

BlueRidgeHorizon
Posts: 9
Joined: Tue May 15, 2018 7:31 am

Re: Can I retire early? 38 y/o

Post by BlueRidgeHorizon » Wed May 16, 2018 9:47 am

I'm no expert by any means, but.. The stock market has been so explosive the past year, I don't think it would be crazy to sit down with a financial consultant and setup a 5 year goal to bring your 3.8m closer to 5m or a 10yr goal of 10m. I would really stop and consider if the 900k house can wait, maybe since you are retired you could buy a house that needs basic updates and make a profit, that would help keep you busy in early retirement and probably teach you a few new things along the way. Just tossing the idea out there, btw I think it is awesome that you have found so much success at 38, its very inspiring for me, I am 32. Do you mind if I ask what type of business you owned?

goodyear35
Posts: 68
Joined: Wed Jan 18, 2012 12:58 pm

Re: Can I retire early? 38 y/o

Post by goodyear35 » Wed May 16, 2018 2:03 pm

BlueRidgeHorizon wrote:
Wed May 16, 2018 9:47 am
I'm no expert by any means, but.. The stock market has been so explosive the past year, I don't think it would be crazy to sit down with a financial consultant and setup a 5 year goal to bring your 3.8m closer to 5m or a 10yr goal of 10m. I would really stop and consider if the 900k house can wait, maybe since you are retired you could buy a house that needs basic updates and make a profit, that would help keep you busy in early retirement and probably teach you a few new things along the way. Just tossing the idea out there, btw I think it is awesome that you have found so much success at 38, its very inspiring for me, I am 32. Do you mind if I ask what type of business you owned?
This was an update of my situation from three years ago, just wanted to provide follow up. Net worth is $5.5m now. Ecommerce related business. Good luck to you!

barnaclebob
Posts: 2963
Joined: Thu Aug 09, 2012 10:54 am

Re: Can I retire early? 38 y/o

Post by barnaclebob » Wed May 16, 2018 2:06 pm

goodyear35 wrote:
Wed May 16, 2018 2:03 pm
This was an update of my situation from three years ago, just wanted to provide follow up. Net worth is $5.5m now. Ecommerce related business. Good luck to you!
Consider updating your original post with a link to the updated thread or a big UPDATE 5/2018 section to avoid those of us replying to the original that miss the old date.

Silk McCue
Posts: 1127
Joined: Thu Feb 25, 2016 7:11 pm

Re: Can I retire early? 38 y/o

Post by Silk McCue » Wed May 16, 2018 2:14 pm

Congratulations on your success and thanks for coming back and posting an update. It is always appreciated.

Cheers

senex
Posts: 70
Joined: Wed Dec 13, 2017 4:38 pm

Re: Can I retire early? 38 y/o

Post by senex » Wed May 16, 2018 2:16 pm

Congrats on your disciplined saving and investment.

If you haven't encountered Mr Money Mustache, it's worth reading a bunch of his articles. A good place to start is here:
http://www.mrmoneymustache.com/2013/02/ ... blog-post/ . Then just surf the blog posts.

He retired at age 30 on savings of ~600k after earning a typical engineer salary and saving ~70% a year. His expenses are low yet he lives a very full and rewarding life. He has a lot of good insights into general lifestyle, preventing consumerism, and freelance working if necessary due to market conditions. I bet after reading him you'll be comfortable retiring in your situation.

(I do disagree with him about 4% being a safe withdrawal rate -- it seems too optimistic to me. But overall his perspective will be useful to your decision)

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