Retiring Early and Yes I am Lazy!
May 4, 2013 2:15 PM   Subscribe

I am 28, have a $60,000 a year job in Accounting and expect to be making close to $100,000 in seven years (after that, raises more uncertain). I want to retire some time in my early to mid 40s. I have a wife who is 34 and works as a retail manager (making about $40,000 a year). I am planning on living off of 20% of our after tax income (excluding mortgage payments). We currently do not have a mortgage but are planning on a house soon. We would like to travel at will and have the (option) of not working ever again. We also do not mind retiring in a cheaper location (Costa Rica, etc) to save on costs. What investment vehicles should I be considering given that I am retiring early? What kind of jobs that are part time could a retiree easily perform? How much money should be going in employee 401k type programs vs. individual investment options and IRA contributions.

I assume I should contribute the max on my IRA and 401k. Should I also do this after retirement? Where can I get a 5+% return with "relatively" little risk? What is your opinion on immediate annuities?
posted by locussst to Work & Money (12 answers total) 42 users marked this as a favorite
I don't think your timeframe changes things much, you're talking about around 15 years.

You should probably go here: the FIRE early retirement forums.

I commend you on working towards this goal, btw. Someone I know was very intent on something similar in their 20s and 30s and as a result lived frugally (they still drive the car they had when they graduated from college, for example) and as a result could pretty much could stop working today if they wanted to -- but I know them primarily because they decided they didn't want to (yet). From an outsider point of view, though, it's incredibly liberating.

You may or may not find that when you get there you actually want to keep working because certain things changed (I know two people who had planned on south america and abandoned it when it got close -- one did retire @ 42, though, but in New Mexico) but you will have an incredibly different experience in your late 30s if you focus hard on building up assets early (and avoiding debt and stupid, expensive purchases). Just when you start to get tired of it, you'll be set, and your friends will be getting tired, too -- of living paycheck to paycheck.
posted by rr at 2:32 PM on May 4, 2013 [1 favorite]

Do you have kids? Are you planning on having kids? That would change the equation considerably.

I think it might be wise to talk with a fee-only fiduciary financial adviser, not a salesperson/broker. The fiduciary will develop a plan that is in your best financial interest and not try to sell you something that is in their best interest. If you elect this route make sure the person has a fiduciary obligation to you. Ask them specifically about this just to be clear.
posted by Seymour Zamboni at 2:41 PM on May 4, 2013

What kind of jobs that are part time could a retiree easily perform?
As an accountant, you might enjoy - and be in demand for - the position of Treasurer on one or more boards of directors.

Start out with low-profile non-profits right now. The big ones like symphonies will expect you to make very large cash contributions in exchange for the board position. Smaller organizations will be grateful for the financial oversight you provide as well as any small contributions you are able to make.

Your non-profit experience should help you network into your local business community where you may be able to find board positions that actually pay. You can make serious money if you can manage to join the board of a Fortune 500 company, but that will be much harder.
posted by b1tr0t at 2:51 PM on May 4, 2013 [1 favorite]

I really think you need to do a realistic budget for supporting your self (selves) during your retirement. That is a lot of years to draw done on interest and savings. Regardless of where you retire you will need to factor in things such as health insurance, out of pocket medical/dental expenses, transportation, other insurances, housing. travel, etc.
If you are jointly making 100,000 K that means you are probably netting 70-75 K +/- 10%--living off of 20% of that seems very thin, if not very very thin for two people with careers. That leaves you 60K +/- to invest--you can reasonable generate $70K +/- annual retirement income. This seems quite reasonable but does not account for inflation. I would guess that working until 50, not buying a house (unless it is a very good invest) and being extremely frugal is an excellent goal for a long and healthy retirement. Please do a realistic budget for the 40 years you will be retired--I am retired, planned and live quite well--but I can tell you--knowing what you want and need makes the goal much more realistic.
posted by rmhsinc at 2:53 PM on May 4, 2013 [1 favorite]

The Four-Hour Workweek has some interesting ideas in this vein.
posted by yclipse at 3:08 PM on May 4, 2013

Can't give you any direct help, but I follow Mr Money Mustaches block and while he's a little free and easy with the swearing (which doesn't bother me but might bother some) he has some interesting ideas on how to retire early and gives a lot of details from how he did it.

Not all of it sits well with some people. The idea of retiring and working part time or making hobbies pay and cutting back on living costs when retired does not go down with some peoples ideas of how to retire but it sounds right up your alley. Sorry I can't offer more advice, still at the early stages of getting my families own retirement stash in order.
posted by wwax at 3:41 PM on May 4, 2013 [3 favorites]

You might like the forums at This is one of the types of things people talk about there. Firecalc, which rr linked to above, is an awesome and interesting tool, but it is based on prior market behavior, so its utility is limited. But I hasten to say that if Firecalc tells you the probability of retirement is low, then you're in real trouble.

So, anyway, this is sort of how the "At what age can I retire?" question works.

1. You make some assumptions about what your budget is going to be in retirement. This is a hard one for young people; this question is a lot easier for people who are in their late 50s and asking this question, for example. You need to know with some degree of accuracy what your annual expenses are, but you'll just have to start by listing them: health care, housing, food, home maintenance, cars, auto maintenance, insurance, travel, utilities, whatever. You might be able to get a rough approximation by figuring out what those things would cost you today and then assume an inflation figure of 3% and see what you'd be spending at your targeted retirement date. This is of course dicey as there's no reason to think your particular expenses would increase by the 3% figure, but it's better than nothing.

2. Identify your sources of income: social security? Nope? Pensions? Unlikely, right? Do you have other income streams? Rental income? It sounds like you'll be funding this entirely on your own investments if I understand correctly. (The normal process here is to ultimately figure out how much you need each month that isn't covered by SS/pensions, so you know how much of a retirement nest egg you need, but you look to be covering 100% yourself, right?). Bear in mind that when you ultimately do qualify for SS, you will have two decades of zeroes going into the formula that calculates your benefits during years that are supposed to be your prime earning years, so absolutely do not use your annual social security statement that estimates your benefits as a guide, since the SSA document you get assumes you'll be working at least through age 62, not retiring early.

3. Determine how large of a nest egg you need based on how much you need every month. There was a popular study from the 1990s called the Trinity Study that suggested you could withdrawal 4% of your nest egg per year, but this seemed to assume a "normal" retirement (ie, one lasting 15-30 years, not one last 40-55 years), and it's also unclear at this point if 4% is sustainable given the economic outlook for the next several decades (in other words, 4% was recently considered a "safe" rate and is now maybe considered somewhat aggressive). Since you'll be retiring in your early to mid 40s, you'll need a whole lot more than this. Maybe 50-60x your annual expenses as a rough rule of thumb? (Because of inflation, it's not like this is 50 years of savings; that is why you need so much, because it needs to grow over time for a while even as you draw down on it).

The conventional wisdom is to max out your tax advantaged space by fully funding your 401k and Roth IRA each year, except your situation throws a curve: you'll have withdrawal penalties on your 401k (which would be presumably rolled into a traditional IRA at that point), so you won't be able to really access those savings until age 59.5. So you'll need to rely on your taxable accounts (and maybe your Roth contributions, which you can withdraw tax and penalty free) to bridge the gap between your retirement age and age 59.5 when you can have access to all of your investments.

Your question leaves out critical information like, "How much do you have invested already, what is your asset allocation, and how is this spread throughout your tax advantaged and taxable accounts?" I can reasonably infer that you're not sitting on a 7 figure sum already, so I think you're going to have real challenges making this plan work, though.

Another question for you--are you paying your mortgage off early? If so, why? You say your priority is to retire early, but to do that you need as much of your money in the market as possible, and you must be maxing out your tax advantaged spaces. Paying off your mortgage early gets you what? A 3.5% return? (Which you only "realize" if you actually then save that entire amount in a few years when you don't have to spend that money on the mortgage--paying off the mortgage makes a lot more sense in the few years closer to retirement when you don't want to have as much money at risk in the equities markets and getting a risk-free/tax free 3.5% return might actually be pretty sweet). I mention this because you are going to need to do way better than 3.5% (or whatever your mortgage rate is that you're paying down) to retire early. It's possible the markets won't yield that rate, and that will suck, but there's basically no way in hell for you to make all this happen unless you get aggressive with your investing, and paying off your mortgage is sort of the opposite of aggressive.

To answer another one of your questions, a good job that you can do when you're retired is one where you work enough to qualify for health benefits, because that is going to be a hell of an expense for you to shoulder for the two decade wait for Medicare eligibility.

Finally, let me assume some numbers and let's see what happens: let's suppose that today you start investing $4000/mo and it nets you a return of 6% (which is pretty good, actually, since this is net of fees and taxes) and you did this for 15 years. This is 50% of your gross; I don't know if it's feasible or not but it might be if you live cheaply. In 15 years your nest egg will grow to about $1.17M. If you really are only going to spend $30k a year (estimated 20% of your after tax income in 15 years; the 30k a year is indexed for inflation), firecalc thinks you can retire. But, if you change some assumptions, like, assume your expenses to be $40k/year, then Firecalc says you would have run out of money 30% of the time.

The real key here is keeping your expenses low, which might be a difficult thing to do given the uncertainty of what you'll pay for health care. From what little you've described, your plan doesn't sound feasible to me, but it's not impossible either--a willingness to work after "retiring" coupled with keeping expenses super low is sort of the ticket here. I also think you shouldn't be dissuaded by people telling you that you can't do this, because you have to set the goal and work towards it before you know that you can't. Maybe you'll find that 43 isn't possible, but maybe 50 is, or that maybe you can't retire at 43, but your spouse can quit her job at some point and work less, and you can both retire at age 52, or you can cut back on your hours at work, or who knows. Good luck!

(Oh, if you really do want to make this happen and want to learn about investing, you really must check out bogleheads, especially the wiki).
posted by MoonOrb at 3:55 PM on May 4, 2013 [14 favorites]

Lots of retired accountants do people's taxes through the tax season,working like crazy, then take the rest of the year off.
posted by ThatCanadianGirl at 5:22 PM on May 4, 2013

I checked out those sites and they all seem useful. I like the FIRE forums - lots of info on there especially in the "best of the boards" thread.

Where can I make an accurate budget? Are there any tools online or otherwise that will help me estimate expenses?

Expenses is something I haven't considered in depth because I've been more concerned about how much I could save.

Maxing out the tax advantaged accounts seems like a given to me and then I can use the individual money during the time before I have access to the other accounts.

What are the best options for individual accounts? The reputable ones with the lowest broker fees?
posted by locussst at 5:27 PM on May 4, 2013

OP, start with the wiki on the bogleheads site. You can read the wiki for days on end and you'll keep learning stuff.

Where can I make an accurate budget? Are there any tools online or otherwise that will help me estimate expenses?

Making an accurate retirement budget when you are 28 will be an enormous challenge and there's no reason to think that any online retirement tool will be much use: these tools are notorious for how simplistic they are. You're going to do it the old fashioned way, which is by coming up with the numbers yourself and then running different scenarios with different assumptions: change the inflation rate, vary the amount you spend on health care, etc. The good news is that this will get easier and easier as you approach your retirement date--the less you are looking far into the future and the more you're looking at next year or the year after, the easier this will be. But that won't tell you much today about whether you can retire at age 43.

Expenses is something I haven't considered in depth because I've been more concerned about how much I could save.

This is appropriate to be concerned about savings, but early retirement is a function of both the amount of investments you have to derive income from and how much you'll need to spend to support yourself. One advantage of focusing now on how much you can save is that it will help teach you to live within your means, which is an absolute necessity for your plan.

Maxing out the tax advantaged accounts seems like a given to me and then I can use the individual money during the time before I have access to the other accounts.

Yes, assuming you can put enough money into the taxable accounts to bridge this gap, though. Right now you and your spouse can contribute a combined $46,000 a year into tax advantaged accounts, and there are tricks to contribute even more (HSA is one; another is after-tax 401k contributions beyond the $17,500 max if your plan allows). If you max out your tax advantaged space, are you sure you're going to have enough to bridge the gap between when your spouse turns 59.5 and can make IRA withdrawals? This is something you want to think about. Although my initial reaction is that you should max out your tax advantaged space (since you can never get it back) and reassess as you get closer to your date and your nest egg grows.

What are the best options for individual accounts? The reputable ones with the lowest broker fees?

The best options for "individual" (by which I'm assuming you mean taxable, ie, not tax advantaged) accounts are the same as the best options for your Roth IRAs and your rollover IRAs: mutual funds, index funds to be specific, with either Vanguard or Fidelity. Vanguard is pretty much a no-brainer for retirement investing, but Fidelity has similar enough offerings. You really need to get fluent in how to set this all up: you're going to want to allocate your investments among domestic stock indexes, bond indexes, and international stock indexes. The general idea is that you want to own "the whole market" and pay the tiniest amount of transaction fees and expenses to do this. This is why Vanguard and Fidelity are excellent choices: they offer the low expense index funds that allow you to do this. A fundamental concept is that you choose an asset allocation that allows you to capture as much of the market's return while lowering the volatility of your investments. A typical allocation might be something like 25% in bond indexes, 45% in domestic stock indexes, and 30% in international equity indexes. These assets are somewhat uncorrelated, meaning that on many occasions when bonds are flat, international equities will be soaring, and when domestic stocks are in a bull market, maybe international stocks will be down, etc. When this happens you keep your asset allocation percentage constant (I'm generalizing), which will have the effect of being able to buy more, say, bonds when bonds are down, and buying more domestic stock funds when they're down. This is called "rebalancing" and it should be a core concept in your plan.

You also have the alternative of trying to do better than the market's return by investing in managed funds that charge higher fees, or invest more narrowly, like in particular sectors (or the extreme example, trading in individual stocks). This strategy is risky, but a lot of people choose it, either because they are convinced they know how to pick the funds and sectors and stocks that will beat the market, because they don't know any better, or because they need to take on more risk in order to meet their goals.
posted by MoonOrb at 6:23 PM on May 4, 2013 [1 favorite]

I have found this blog helpful:
posted by Short Attention Sp at 4:54 AM on May 5, 2013

401(K) before IRA if the 401(K) has matching. But try to get a SDBA (self-directed brokerage account) for your 401(k) so you don't pay a bunch of opaque fees.

For retirement and non-retirement long terms savings buy highly diversified (total market) low fee stock market index funds or ETFs as well as some other investments such as REIT index, bond index, etc. to give more diversity to your portfolio. You'll find low fees at places like Vanguard and Fidelity.

Make your investments automatic withdrawals from your bank account so that you will have built-in discipline in your investment plan.
posted by Dansaman at 9:44 PM on May 5, 2013

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