My wife and I are 35 years old. We have no debt, have two young children, and she’s a stay-at-home mom. We invest consistently and our net worth is starting to look pretty good. I often wonder, “This early retirement thing…is it really possible?”.
- What about the random costs of kids?
- What if we retired and one of us got cancer?
- And what if we ran out of money too early?
…These are the types questions that my wife fireballs at me when I dare utter the words, “early retirement”. Lol!
Honestly though, she’s just scared. Scared of all the unknowns. And to go through all those unknowns without a job?? Whoa. Scary stuff.
But is it really…? It’s time to dig in and discover these answers… both for me and my family and for you and yours!
Early Retirement – Is It Really Possible?
I wrote a post about 6 years ago titled, “Extremely Early Retirement – It’s Just Not Working“. In this post I outlined the typical plan for extremely early retirement…and why I really didn’t like it!
- extreme saving is great, but it isn’t necessarily possible for lower income earners
- future expenses will always increase (like healthcare!!) and are difficult to estimate
- you’re stuck with a frugal life forever!
- you have limited control of your income if you’re fully invested in the market
Basically, it just seemed like there were way too many variables… Too many bad things that could happen that might derail what you thought would be a blissful retirement… Then, at the point of derailing, you might be 65 years old and been out of work for 20 years.
How employable are you at that point? Not very. So it could go from “life-is-great” to bankruptcy in a hurry.
Is early retirement really that good of an idea?
My Mind Shift
Back when I wrote the post about how early retirement wasn’t working for me, I wasn’t quite 30, I had no kids, and I really didn’t have any big aspirations in life. Early retirement honestly didn’t sound all that great. Retire from what? My life was pretty simple and easy.
And then in May of 2016, everything changed
That, of course, was when we had our first child. A sweet girl. She’s four now and I’d honestly give her the world if I could. (And, we had a son just a couple years ago as well!) After these seemingly short years, I’m already understanding the importance of time. Days, weeks, months, years – they’re just whizzing by, and there’s no sign of it slowing down.
So how can I wrap a rope around the clock and make it stop? Well, the short answer of course is that I can’t…but what if I didn’t have to open my laptop at 7:30am and stare at it intensely until 5pm (or later on those busy days)? What if, instead of having a blocked out schedule with meetings and project work, I could delete it all and have a completely clear calendar?
I could then insert things like:
- “play babies with my daughter”
- “play dinosaurs with boy-o”
- “beach day!”
- “Nap with the kids”
Suddenly, this early retirement thing is starting to make sense…
With Goals, Nearly Anything Is Possible!
About two years ago, Liz and I wrote down some long-term goals to make sure we were on the same page with money.
Here’s the actual list we put together at that time:
Believe it or not, we’ve already accomplished many of these things in just a couple of years!
- Move to the country by 2020 – Yup, we bought our home on 6 acres back in November, 2018!
- A flexible job/business – Technically, I do have an 8am-5pm job every day, but it’s a family oriented company. So, if I need to shift things around a bit to fit in some important family time, they’re all for it!
- Fund private school for kids – This is our focus right now. I figure we need to invest $120,000 to fund both kids through 12th grade. So far, we’ve got about $95,000. Getting close!!
- Fund college for kids – We want to fund 50% of our kids’ college costs. That way they have some skin in the game and won’t just get their major in partying… We’ve invested $25,000 for our 4 year old and $20,000 for our two year old. Based on my college investment calculator, this should grow to cover 50% of their education when they’re of age. All set with this one!
- Constant quality time as a family – We honestly have a ton of family time. My wife stays at home with kids, I don’t have too much going on during the evenings and weekends. So, we’re growing up as a pretty strong unit. It’s great!
- LOVE what I do for work – I’m a senior financial analyst for a great company. My work matters, I’m respected, and it’s fun because I get to play with numbers all day. 🙂 Ahhhh, a dream! 😉
- Wife happy in her home/career life – Like I said before, Liz is a stay-at-home mom. She’s also a photographer and her business is really picking up! She loves the nature of photography and enjoys contributing to our income. All in all, I’d say she’s quite happy with the arrangement!
…And then there’s the retirement option by 45. We’re still working on that one obviously!
The Power of Writing Down Your Goals
The point of the above is that we wrote down these goals just two years ago thinking it would take us 5-10 years to accomplish all this stuff. But this is the power of a simple goals list. Even if you don’t look at it all the time, it’s like the writing just gets engraved on your mind. Your subconscious won’t forget it!
So with early retirement…is it possible?
Sure! People have done it before. And they’ll continue to do it in the future!
But is it something you really want? Should you actually make this a goal for yourself?
Be careful, because if you write down a goal for early retirement, chances are that you’re going to achieve it. So, you’d better make sure you want it!
Early Retirement Sounds Great…but What Will You Do?
Before you find yourself on your retirement date, you’ve really got to ask yourself…”What am I going to do?”
- Finally relax
- Golf every day
- Work on house projects
- Spend time with grandkids
But you know what?
- I don’t know of anyone that can literally do nothing 24/7. They ultimately go bonkers.
- Golf will get old, even if you do love it (and realistically, it will only take up 3-4 hours of your 24 hour days)
- House projects will end eventually (you can only add so many rooms to your home!)
- And the grandkids – believe me, you can’t spend all your time there either!
I know four different individuals that have retired before their 55th birthday. One has done pretty well because he had so many interests that he wanted to pursue. The other transitions weren’t so graceful, and I think that’s the story of most.
They may have hated their job so they just slogged through life, looking forward to the day when they didn’t have to do it anymore. What they forgot was that they should probably retire to something instead of away from something.
So, they end up just finding ways to pass the time in retirement, rather than doing something that they’re really going to enjoy.
So What Will Your Purpose Be In Early Retirement?
If you want to make your retirement way more fun than your working years (and you really should), then you really need to have a pretty strong purpose. Some arena that you could talk about all day and where you’re making a true difference.
Examples from those that have really done well with early retirement:
- Stepped up and served as a member on the board of a non-profit organization that they love and are passionate about
- Volunteered their time making dresses for underprivileged children (this is seriously how one woman lived to be 100. She had a purpose, and that was to make children smile when they opened up their once-a-year gift and found that it was a dress made just for them).
- Became a mentor to young boys and girls who desperately need attention, love, and direction.
- Another couple made a point to travel the globe and explore the many cultures that exist on this planet!
The point is, if you know what you were put on this earth to do – if you absolutely know your purpose – then do it in retirement! You’ll have a blast and you’ll make a difference.
If you have no idea…then you may not want to retire yet.
Your days will drag, you’ll question your decision, and you might even end up going back to work…
So what is it for me? Honestly, I’ve struggled with this.
I love to write for this blog, and I do make an impact in many peoples’ lives, but is that enough? Should I be doing something else?
Other things I enjoy and may want to do:
- Counsel young kids at the local Boy’s and Girl’s Club
- Buy and fix up homes that I’d later rent out
- Become a consultant for local business
- Start a personal finance business and counsel local individuals
- And then of course etch out a bunch of time with my wife and kids (especially in the summertime when they’re out of school!)
It’s a solid list, but I just haven’t quite put it all together yet. And you know what? This is probably the reason why we’re not racing toward early retirement. I don’t exactly know what we’re racing toward (especially since I do like my job).
That, and my wife is freaking out about not having corporate health insurance… ;). So let’s dig into that, shall we?
What About Health Insurance?
So…health insurance. How does that work when you’re 45 years old and don’t work for anyone?
Sounds tricky right?
It’s actually not that bad, especially since the Affordable Care Act was instated.
It’s All About Your Income
Let’s say that you’re worth $4 million and you withdraw $50,000 a year to live on. What is your income?
…$50,000 of course!
That’s what your insurance premiums are based on. It has nothing to do with what you’re worth, but almost everything to do with what your income is each year and how many dependents you have.
Liz and I as an Example
Liz and I have absolutely no debt and could live pretty comfortably on $30,000 a year. What if we banked a ton of money over the next few years, retired, and then decided to draw $70,000 a year to live a nice, lavish retirement at 38 years old?
I was pretty curious, so I actually visited the healthcare.gov website. I entered our ages, our dependents, and an income of $70,000.
And quite honestly, I was blown away by what I saw.
Here’s a screenshot.
Take a look at the monthly premium…
Yup, that’s right. It’s $0 a month.
Because I have two kids and we “only” bring in $70,000 a year, we would earn enough credits to make that policy absolutely free each month! Insane.
Now granted, this isn’t exactly the best insurance out there…
- the deductible is high
- the company doesn’t have very good reviews
- and there’s no dental plan included
But c’mon, it’s totally free! If we had to pay a few extra grand for a procedure here and there, we’d still come out way ahead vs. the insurance I have through work.
If you want to know what healthcare is going to cost you, start putting in some numbers and see what the cost will be. It’s the absolute best way to know!
So How Much Will You Need to Retire Early?
Here’s the question I always get. Something like, “If I’m going to go into early retirement, I want to know how much money I need to be set for life.”
And that’s certainly one way to look at it.
The Lump-Sum Approach
The quick answer to this lump-sum question is:
- How much do you need to live on each year?
- Then simply take that number and multiply it by 25
So if your answer was $50,000 a year, then you need at least $1.25M. However, also consider the time value of money. $50,000 today will be worth about $12,500 forty years from now (thanks to inflation). So, if you’re retiring at age 35, that $50,000 won’t mean much when you’re 75 and you’ll have a pretty tough time scraping by!
That’s a long way of saying…you may want to add a safety factor to your number.
- If you’re 35, multiply your resulting number by 4. So you need $5M.
- If you’re 45, multiply your resulting number by 2. So you need $2.5M.
- And, if you’re 55, don’t worry too much about it. Just save up the $1.25M, retire, and living frugally.
The Passive Income Approach
The lump-sum approach is okay, but I’d rather have income earning assets that appreciate in value and provide me more income as inflation happens. …ie. I’m a HUGE fan of real estate!
If we want to live on $70,000 a year, I’d want to have about 5 rentals that each earn about $1,200 a month. This would provide us with $70k this year. And then you know what? Next year it would net us about $72k. Then $75k the year following. And then $78k the year after that.
I won’t have to worry about spending less and less because my investments will actually yield me more and more. That’s our plan for retirement.
Sure, we’ll have some 401k investments as well, but we’ll save most of those dollars for our old-age retirement. You know, when we’re over 65 and just want to blow a ton of money on vacations with kids and grandkids! 🙂
Early Retirement – Is Possible? And Is It For You?
Is early retirement possible?
Based on my wife’s concerns that I laid out early in this post, early retirement really hinges on three things:
- Do you have enough money?
- Can you get the appropriate insurance?
- And will you actually be content in retirement?
If you have those covered, then absolutely it’s possible!
So when will I report back to my wife that early retirement may be in the cards for us? Let’s just say I need to put a PowerPoint deck together first. 😉
How about you?
Are you emotionally ready for retirement? As it turns out, knowing what you’ll do in retirement is almost as important as actually saving up the dollars!
What will you do in your early retirement years? Do you have grandiose plans? Or are you still figuring them out a bit like me?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.