posting a little late today because we’re fresh off a downright awesome weekend. we got to spend time road and mountain biking in the area, hiking a new-to-us trail that we now love, reading during a thunderstorm power outage, dining outside, and enjoying that kick-ass world cup soccer win by the u.s. women. if that is what early retirement will be like (minus the world cup part, most of the time), we’ll be stoked to get up every day.
it’s easy to think that early retirement will be the magical cure-all that will heal everything that ails us, physically and mentally. to assume that it will make our marriage stronger, our mental health happier, our physical fitness better. and maybe it will. but it’s good to be clear-eyed about these things, too. as our unintentional WOP WOP of a post last week made clear, in case it wasn’t already, we are questioners. we question just about everything. we wonder if something is too good to be true, when the time will come to pay the piper, when the other shoe will drop. we try hard to be prepared for any situation, and could probably win the vote for neighborhood preparedness captains handily, if that was such a thing.
someone might see our approach as pessimistic, but we don’t see it that way. we think that, by examining most aspects of our lives and choices, we’re making clear-eyed decisions that will minimize future regrets. and it’s in that spirit that we made the decision to retire early at the end of 2017, when we’ll be 38 and 41. as you know if you’ve wrestled with this topic, it’s a big decision to make. one of the biggest. one that comes with a huge amount of potential upside (freedom! independence!), but also quite a few potential risks. oh, and you know we’ve thought about those. a lot. questions like:
- how will be pay for and receive health care?
- what happens if our portfolio crashes?
- what if something catastrophic happens and we lose our house? (wildfire, flood, etc.)
- what if we spend all of our money?
we’ve answered those questions to our satisfaction, so this post isn’t about answering the “what ifs.” instead, it’s about our reasons for being optimistic about our vision for early retirement, and for making things work in spite of the inherent risks. so here we go…
why we’re optimistic about our early retirement:
we have diversified our investments. our net worth is comprised primarily of four different elements: our primary residence (which we count because we could downsize and free up capital), our rental property (currently worth more than we paid, and fully rented), our index funds with vanguard, and our 401(k) funds with other investment banks (invested across multiple sectors and markets). we could of course be more diversified, but this mix is enough to help us sleep at night. all four sources could generate income for us, especially if we decided to airbnb out rooms in our house. we could also sell the rental house and free up cash if we had to.
we could downsize our home. we live in a desirable mountain town, one that gets a lot of visitors year-round. there are a ton of second homes here, and lots more folks use their homes as vacation rentals. that means that it’s a high-priced housing market, and we could easily free up cash by selling our home and buying something smaller and cheaper. we think we could easily free up $100,000 if we sold and bought a smaller house in our neighborhood. but we could free up much more if we were willing to move somewhere a lot cheaper. while we have zero desire to do this now, we take comfort knowing we could do it in the future if things got financially untenable. we could also rent out our home while we travel, or use it for house-swapping, which is another way we expect it to help us out financially, without having to sell.
our retirement budget is pretty cushy. while we don’t share our numbers, we’ve hinted that we don’t scrimp on groceries, and we expect to travel a lot in early retirement. from this, you can infer that our projected budget in early retirement is not a pauper’s budget. what this means is that we can easily scale back if we need to. if our index funds aren’t performing, then we can cut down our expenditures by as much as 50 percent, and still live an enjoyable life. that’s part of why we made the move to our small town, because there’s pretty much endless outdoor recreation that we can do here for free, since we already have the gear. so while cutting the budget by half would mean zero travel, we would still be plenty entertained.
our income needs won’t stay constant. as we’ve written about before, we have a two-tiered retirement strategy. we killed it with our 401(k)s early on, and project that we should be able to live a little larger (or at least cover our rising health care costs) once we reach 59 1/2. we’re willing to live a little more like dirtbags in the years before 59 1/2, mostly in the form of traveling cheaper — camping, staying in hostels, etc. we’re still young and able-bodied, and have no problem roughing it. but once we’re older, we may crave more comfort, and our 401(k)s should allow that. so on the simplest level, we’re planning to live cheap-ish in the near future, and live more comfortably once we’re older. but there will be some years in the meantime when we’ll need even less to live on. right now, we are still paying off our rental property, and the rent we receive basically covers that. but once that property is paid off in ~10 years, it will generate enough income to mean that we need even less from our investments to cover our living expenses, which will help our money stretch farther.
we’re resourceful. more than anything else, the thing that gives us comfort is that we’re solution-oriented people. we figure things out. sometimes we even crave a challenge. and we know that we’ll be okay simply because we will make it work. we are willing to buckle down on budget, grow our own food and stop buying everything if we need to. heck, we could even survive out in the open if we had to, if things got that bad. we’ve lived super cheaply before, back when we paid off our credit card debt, car loan and student loans, and could for sure do it again. and we can hustle for work. we’ve avoided lifestyle inflation, we don’t see ourselves as “above” certain work, and we’ll do what’s necessary to sustain our lives. for sure privilege plays a role in that, and we know it, but we’re also good at taking advantage of opportunities that present themselves.
what about you? are you optimistic about the future? what in your plans helps you sleep at night, knowing you have a backup plan?