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?
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Categories: goals
Outstanding Next Life. I am optimistic about our future. We live simply and are moving toward a more flexible semi retirement in a few years. The prospect would probably be a lot scarier if we hadn’t gone through a tough patch last year. At the same time our son was born and my wife was leaving the workforce, I got laid off. It all worked out fine. We even managed to save money each month during that time. So long as we have our health, I will be optimistic about our future.
Love the camping pictures. We’re looking to do a 10 month long RV trip in 2 or 3 years. Frankly, I’m ready to go today!
-Bryan
That’s pretty incredible, that you still managed to save during that time! Kudos. And ha — we feel the same way about an extended RV trip! We could pack up and leave today, and we’d be fine with that! ;-)
I am also optimistic about our future. We have built in a lot of safety nets and we’re still saving now even as we live on our retirement income because we have kept our expenses below our needs and we’re also cheap. Our only concern is the main part of our pension income has no way to adjust for inflation so over time the buying value of that money will be reduced. That is why we are saving a little each month now against that future. The other concern is our income is almost entirely in Canadian dollars but the Canadian dollar has lost 20% of its value against the American and is projected to lose another 10% by year’s end. This was partly behind our decision to purchase our little house, so we can stay in Canada year around if we have to or reduce the six months we have been staying to five or four to offset the Canadian dollar loss. The house resulted in some increased expense in the short term and some short term debt but on the other side we are saving on camping fees and my garden is producing and saving us that way. We do have some US income so modest as it is, that increased value will offset some of the loss on the Canadian side.
Does the Canadian/U.S. exchange rate affect your purchasing power at home in Canada? We’re a bit ignorant on the subject and, in the U.S., are often insulated from the effects of currency exchange rates. Just curious. It’s great that you have lots of safety nets and multiple income sources!
Yes and no. Some stuff goes up such as fresh fruits and vegetables from California. Other stuff drops that comes in from other countries if their currency has dropped too, which for a lot of countries it has. So fresh fruit from Europe and South America is cheaper. Beef is a weird one because we used to ship all our beef to the USA for processing, then the American cattlemen’s association got the FDA to close the border to all Canadian beef after an American born heifer that was sold into Canada developed mad cow disease as a breeder. The result was we had this glut of beef on the hoof and so we started doing our own processing again. During times when the US dollar is high beef drops because our processors can compete. USA is still our biggest trading partner (I think, I haven’t checked in a while). But we import a lot from China, and the rest of Asia and South America and we get lemons and limes from Israel instead of California and stuff like that. We don’t have anything like the FDA controlling imports that would otherwise compete with California prices. (Infuriates the USA that Israel can sell lemons and limes to us cheaper than California so the FDA declared them diseased and confiscate them at the border. I’ll bet you’d be surprised to learn California fruit costs a lot more in California than in Winnipeg.) We are personally charged 2% currency exchange which is just the fee for exchanging the money so it’s nice to have American income we keep in a US dollar account and pay no exchange fees on. So it’s all over the place. But certainly we get hit hard when we are in the USA. We need to get one of the southern state to break away and join Canada.
That’s interesting! And we’ve definitely seen California products cost far less outside of CA than in the state!
Nice to read that you have it all answered now. It sounds like a rock solid plan, with enough escape routes for the coming years. IT is inspirational, a goal I also want to achieve.
Am I optimistic about the future? yes I am, There is so much to do and learn on the road to freedom, one can only be happy about it. And now that I am blogging on FIRE, IT makes me .think through everything even more. That should help to get a rock solid foundation the day We make the move
We definitely don’t have all the answers, but we have enough backup plans to feel confident. 😉 Glad you are feeling optimistic too, and finding that blogging helps — we agree.
First, I must say that I am a bit jealous of your biking adventure that you talked about. While we have a LOT of trails in our area for hiking and biking (Mount Lemmon), I can only imagine the possibilities in your neck of the woods…surrounded by mountains, huge trees and pleasant temperatures.
My wife and I tend to be very optimistic people (though she tends to worry a little bit more than I do about the unknown). And truthfully, there is a LOT of unknown in the world of early retirement. Retiring in your 30s isn’t typical, and there are enough years in front of us where virtually *anything* can happen.
What makes me optimistic is the fact that anything in this world is replaceable – even careers. If we start out on our early retirement adventure and everything, for whatever reason, hits the fan, then we take a step back, re-group and find some work somewhere and live as cheap as we can, then try it again. If things really get bad, we sell our trailer and truck (if we decided to go that route), get a small apartment and find some work within walking distance from our place. Or, maybe I’d call up one of my previous co-workers and do a little begging (I never burn my bridges…for just this reason).
In other words, there are always options, and we are very go-with-the-flow kind of people. I believe that things will work out the way that they are supposed to work out, and even the less enjoyable parts of life can – with the right attitude – turn into opportunities for future success.
Based on what I’ve read on your blog, you seem like very similar people in your ability to adjust to life’s demands. If things don’t work, you re-group and find a solution.
Nice post!
That time in Moab a few weeks ago taught us that we are not desert people, not even high desert — though we loved visiting! We much prefer our cooler-in-the-mountains climate! Makes mountain biking in July much more tolerable. :-)
We’re definitely like you guys in the figure-things-out mentality. Whether we have to go back to work, downsize our house, or go full-time camper van, we’ll make it work.
I don’t really like the term ‘early retirement’ because most people still do something to bring in income. The difference though is working because you want to, on your own terms, not because you have to, on someone else’s terms. I own a couple of rental properties free and clear. The rental income combined with a super simple life, has brought me financial independence before 40. My basic needs are covered by the rental income – medical, phone, food, shelter – and then when I work, it is extra money to save or travel with. I need to at least make $5,500 per year in earned income to put into my IRA, because rental income doesn’t qualify. Like you, I want diversity, so I don’t want to stop saving and investing. But, with a combination of a retirement fund, rental properties, simple living and freelance work that is fun and meaningful, I know I will always have my basics covered without having to go back to the corporate world. Also, my husband and I are planning a couple of extended overseas trips where we would get work visas to stay longer than a typical tourist. I think that would be a great way to meet people and live like locals without draining our accounts.
On FI vs ER, we have no problem with the ER moniker since most retirees also do some work. We plan to work a little, but not a lot, and that’s why we went with ER as our term of choice. We never want to have to work again, and our post-work budget factors in zero income, so ER fits for us. But, you know — potato, potahto. :-)
Your rental income sounds pretty awesome. We bought our rental property to rent to someone we know — we didn’t set out to be landlords — and we’re not aiming to build a rental empire. But for you guys, it sounds pretty awesome to be able to pull down that much rental income to cover your basic needs!
haha… potato, potahto… I love that. You are right though that FI vs ER is really just how each person resonates with the term. I used to call myself ‘semi-retired’, but FI just seems a better fit for my lifestyle since I still want to work. I actually think your blog name is the perfect name for where I feel I am at in life… i.e. through lifestyle changes and the right investments, I was able to leave the corporate rat race and now I am just living my next life. :)
That’s so excellent — we hope to be living our next life soon, too! Though, in truth, just feeling that goal get closer has had a pretty transformative effect on our lives even while we’re still working. Good stuff!
Sounds like a great holiday weekend. I’m very optimistic about the future. My ability to adapt and change will also help smooth out any bumps along the way. Being resourceful is key and being able to adapt to changes outside your control also help.
Amen to that! Resourcefulness is everything.
I don’t think being prepared should be mistaken for pessimism. The MC and I share the same views on being optimistic about our future. We have moved around quite a bit since we have been together for 10+ years and some of those years included being unemployed (or fun-employment as we like to call it), sometimes for 3-4 month long stretches. These mini-retirement periods combined with our living simple lifestyle gave us the confidence to start the journey towards early retirement. Our current focus is on financial independence more than early retirement as this will give us the flexibility and freedom to do what we want – to continue working or quit our jobs altogether (we all know which way I’m leaning towards :P).
You’re leaning in the right direction. :-) Unlike you guys, we’ve only had one break from working ever, for only one of us, and so it’s a bit more of an unknown for us. But we’re willing to take the leap — and it can’t come soon enough!
Optimistic? I’d be lying if I said I was there already, but we WILL get there! :)
Baby steps. :-)
Hi ONL – I like how positive you are about all this!
Having a backup plan is great, it helps feel more confident about a decision. I also believe that whatever has been done once can be done again. If you manage to reach FIRE once, you’d do it again if you had to.
“Whatever you think you can or cannot do, you’re right”.
Your post suggests you’ll be doing great :)
Great point — we can always work to build things back up if something in our plan fails. Thanks!
I am definitely reasonably conservative in my estimates for the future. I’m optimistic about the future because I have so many years ahead of me that I just have so many options of what I’ll be able to do! Especially considering that I should be a millionaire by my thirtieth birthday. I think my ideal balance would be about 6-8 weeks off per year and then working 40 hours per week the rest of the year.
If you are game to work that much, then your plan sounds great! We have learned that work is the last thing we want to do, and we’re willing to take on a little risk in exchange. 😊
I am definitely ready to retire early myself. Only 364 days left. I could have done it sooner, but wanted to get a solid base in place for emergencies and more travel.
The rentals have been great, and produce more than I will ever need. Plus I have some investments.
That’s so great. Congrats on beating the game! Just curious — if you’re already set, why are you still working? 😉
Good question. I set 7/6/2016 as my date and now I feel like a quitter if I leave sooner.
Every date is arbitrary on some level, so that seems as good a reason as any!
Just found you guys, that seems like an awesome plan and wish you guys continued success until the 2017 planned date. I’d say another possible strategy would be moving to an entirely different country with lower spending needs. Downsizing home + 100k, downsizing country + some more wiggle room. You guys will be young enough respectively that becoming expats somewhere may work well.
-Rich
Nice to “meet” you! we have for sure thought about leaving the U.S., and want to stay put for a variety of reasons. But it’s a good reminder that going expat can be part of the backup plan!