This page is about our financial early retirement plan. If you want to know more about us and why we’re doing this, head over to the About page.
We retired early at the end of 2017 when I (Tanja) was 38, and Mark was 41.
We knew from before we got married that we didn’t want the life that we could easily default into — chained to our desks 40 or 50 hours a week for 40 years, living for the weekends and our four weeks of vacation a year. We wanted to climb big mountains, see parts of the world most Americans never venture to, and have time for major creative and service ventures.
We have always craved a life of adventure, and we’re still pinching ourselves that we made it happen!
Our Retirement Financial Plan
Our financial plan encompasses three major phases, one of which is now complete:
1. The accumulation phase, a total of six years, four of them laser-focused, of aggressive saving and mortgage paydown, to build our assets to support early retirement without ever needing to earn income again. (Completed)
2. The early retirement phase, when we’re living somewhat modestly off our taxable investments and rental income (and a very limited amount of side hustling in the first year only), and we get our health care through private health insurance. (Current phase)
3. The traditional retirement phase, after Mark turns 59 1/2, when we’ll live a little larger off our tax-advantaged/tax-deferred investments — 401(k)s and IRAs — and get our health care through Medicare (or its future successor). (Future phase)
The Accumulation Phase
Income and Savings Rate
The only real way to save for early retirement is to live well below your means, and we did that in a big way, accelerated hugely by some luck and high earnings. We earned above average salaries for most of our careers with the final few years in the top three percent of household incomes, and despite living in a high cost-of-living area, we saved a high percentage of our after-tax income, namely by not inflating our lifestyle as our incomes increased and by banking windfalls (year-end bonuses, tax refunds, etc.). You don’t need to earn as much or save as quickly as we did to retire early, but it sure speeds up your progress.
Dealing with Debt
We got rid of our consumer, car and student debt long ago (and were crazy fortunate not to have had much student debt to begin with), so weren’t dealing with that in our aggressive saving years. We’re big believers that anyone pursuing early retirement should make sure this debt is long gone before pulling the plug on your career.
We got lucky and were able to buy our home in 2011, near the bottom of the market following the 2008 crash, and bought waaaay less house than we could supposedly “afford” because we knew our goal was to pay it off quickly. We paid off the house in early 2017, only a little over five years after we took out the mortgage. We still have a mortgage on our single rental property, but we’re not in a hurry to pay that off because our tenant in essence pays that mortgage payment.
Building Family Support into the Plan
We’re big believers that accumulating enough money never to work again isn’t worth much if we can’t use some of it to help those we love. So while we were in the accumulation phase, we made a sizable personal loan to a relative to help them pay off medical debt, and bought our rental property specifically to rent it to another relative with special needs. Both of those steps set us back slightly on our saving progress, but we were able to adapt our plan to make both things good investments in the long run.
Want to know everything we did financially to be able to retire early? Here’s the full rundown.
The Retirement Phases
Our early retirement plan relies on having two major stages of income and health care coverage — before we turn 59 1/2 (early retirement phase), and from age 60 (income) and 65 (health care) on (traditional retirement phase), roughly represented here:
The first ~18 years of retirement (the early retirement phase) is funded by our taxable investment accounts entirely for the first 10ish years (with a small supplement from the personal loan repayment in the first three years), and by a combo of our taxable investments and rental property income after the rental mortgage is paid off in 2029.
Our investments are primarily well-diversified Vanguard index funds, currently with approximately a 70/30 overall ratio of stock funds to bond funds. We live first off fund dividends, and second off selling shares.
Later (in the traditional retirement phase), we’ll be able to tap our 401(k) assets, which are well-funded thanks to Mark maxing out at an early age. At that point, we’ll be able to step up our quality of life significantly.
We do expect to earn some other income in retirement, which we’ll view as a hedge against sequence of returns risk. But our plan is based on not needing any additional earned income, so we can make decisions about any work we choose to take on based on whether it’s fun and meaningful, not based on how well it pays.
Ensuring that we always have access to high quality health care is super important to us, and is not something where we’re willing to gamble. We’re expecting to have to keep adapting as the rules change and the limits shift around, but for now we expect to buy private health insurance from the exchange for our first 23ish years of retirement, until we’re eligible for Medicare or its future equivalent. (We bought our first exchange plan in late 2017.)
The Life Part
We know “retirement” means different things to different people. Here’s what it means to us:
Retirement means never having to work again.
We absolutely will work a little in retirement because we plan to have many retirement years in front of us, and we have naturally inquisitive minds that crave problem-solving opportunities and the chance to help people. The work we do, however, is work that feels like fun to us, that we choose to do.
We saved enough so that we could never work again, and we’ll only do jobs that provide us with worthwhile benefits (like free ski passes, free travel, a creative outlet, a way to have fun or a way to support nonprofit organizations we love). We already do and expect to do lots more unpaid volunteer work for causes that are important to us.
We didn’t trade our careers for jobs. We traded them for permanent control of our time and brain space.
Come along for the next phase of our journey!
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I think you said it right with “we’re not trading our careers for jobs”. While it is certainly okay to work when you are retired, you’re working because you like it, not because you need the dough that the job pays. Retirement is about having fun and enjoying your life by maximizing happiness outside of NEEDING to work. Looks like you two have that one figured out. :)
Good luck to you both! I’ll be following along your path towards ultimate happiness.
Thanks, Steve! At least that’s one thing we have figured out… among a multitude of other non-figured out things. :-) Appreciate you stopping by.
Technically, you can withdraw money from a 401 (k) penalty free at age of 55, assuming you have retired from that job. And if you do a Roth Conversion Ladder, you may be able to access retirement accounts even earlier ( say 5 years after the conversion)
Good luck in your retirement journey! It looks like you are so close!
Thanks, DGI! We have a bunch of backup plans in place, and doing the Roth ladder is on the list of possible backup plans. But we also hope it’s not necessary!
Hi DGI. I just found out about the “rule of 55” a couple of weeks ago. This was especially timely for me, as I turn 55 next week and have been plotting my early retirement for a while now. Just wanted to add a couple of caveats related to the rule of 55, which I read on the IRS website and which Fidelity (who manages my 401k) confirmed over the phone last week. The rule stipulates that in order to withdraw funds penalty free, you must have left your job no earlier than the year in which you turned 55, i.e. even if you leave your job on Jan.1, but won’t turn 55 till later in that year, you will be eligible for penalty-free withdrawals. The other important stipulation is that you must leave the funds in whichever institution is managing them at the time you leave your job. If you do a roll over to a different financial institution, you lose the penalty-free withdrawal benefit.
Thanks for sharing that extra detail, DDB!
I also managed to semi-retire early and underwent many of the same things you did to achieve it: accumulation phase, get debt free, etc. Discipline and focus; it can b done! Now I work 1 day a week, travel, (Int’l and that road trip u mentioned) & am finishing my second Volunteer gig this Friday, after tax season ends. Fun it is and do enjoy your deserved time, also!
That’s so awesome! Congrats on pulling off something amazing!
Too simplistic to show plots without any scale on the y-axis.
Adding a $ amount adds context to relate with audience.
No way would I buy a book written by them…
Hi guys. I’m curious why you’re spending your taxable account down first. Will you also be doing partial rollovers from your Trad IRA/401k to Roth? It seems like your tax-deferred portfolio will be very large by the time you tap into it, and you’ll be slammed with RMDs.
I’d highly recommend you check out Michael Kitces discussion of the subject:
Thanks for the follow and congrats on a well rounded plan. It’s a shame we can’t see who you are but we understand you don’t want employers figuring this out before you tell them. We also viewed work as a means to an end and had we got married earlier we probably would have aimed for retiring earlier than now at age 59 and 43.
I can’t tell what it is you do or if you invest a lot so it’s hard for me to share some things we know work since we just lose escrow yesterday and have increased our net worth over 185% since we started planning for ER in 2009. I’d be happy to share anything I know about investing, saving or planning if you are interested.
Best of luck. We are about to start so it hasn’t kicked in yet
Rob and Diane
Thanks so much, Rob and Diane! We look forward to following your journey and learning lots! We have a net worth update tomorrow that will show our progress — pretty huge, actually, since 2011 especially. We also updated this page to reflect how we’re actually saving/investing. Can’t give away much more than that, but you raised the great question of what we’re doing, and spurred us to share more. Thanks!
Great post! I love the concept of this blog! We are both in our early forties and hope to retire by the time we turn 50. I used to believe that your career defined you as a person and used to give an average of 60-80 hours a week to corporate america. Now that I am older, I could care less about the career and want so much more out of life! A job is just a way to pay the bills! I feel grateful that I came to my senses early before it was too late!!!
Thanks! We are both climbers in our careers, but agree with you — there are more important things in life! The last thing we want to do is spend our best years chained to our desks. Glad you and we have come around! :-)
I love that you have decided to dedicate your next life to something other than a money making hobby. Many FI/ER’s try (as I will) to have some sort of side hustle. Its refreshing to see a different point of view.
What a lovely way to put it. Thanks!
Just stumbled upon your blog and am really excited to see how this works out for y’all! I also love y’alls definition of retirement. Also love that your career doesn’t define you – that is hard to find these days. Can’t wait to keep reading.
Thanks so much! Glad to have connected. 😀
I commend you on this journey and without a doubt you will accomplish it. I look forward to reading how it all unfolds for the both of you. – Mr. CBB at Canadian Budget Binder!
Thanks! Getting closer every day… ;-)
I am amazed at how much we have in common with the two of you! Married and no kids, same ages, outdoor enthusiasts with a love of skiing/riding power, my husband is an avid cyclist, eating local food is very important to us and I would love to travel more, hopefully doing a road trip in an RV or even a cycling trip cross country. I love your idea of an endless summer and endless winter and we are going to have to incorporate this into our plans. You are a few years ahead of us but I am really looking forward to following your blog more closely as you will soon be living out our dreams of early retirement!
Nice to “meet” you Mrs. SFF. It DOES sound like we have a lot in common! What is riding power??
Oops, typo there! Riding (snowboarding) powder snow. My husband is a telemark skier but I am a snowboarder.
Hahaha — that makes a LOT more sense. :-)
I just found your blog. I am also in the same boat. I am planning to retire in 2019 and have been working on my retirement plan. My strategy seems to be slightly different from yours. But it doesn’t really matter as long as we can retire within a few years. It is nice to know someone is currently working on the early retirement.
Hi ER2019! There is a big and welcoming community of us here and around blogland who are working toward very similar goals on similar timelines. I hope you’ll join in the fun! Our blogroll has a good list to get you started. Welcome!
It sounds great. How can I join your blogroll??? I can add your site on my list as well.
Hi, just came across your blog. Having the “next life” in the title instead of the normal “retire early” really appealed to my click finger!
One common thing I see in these FI and ER blogs is the desire to be mortgage free on your primary home. I generally don’t like debt as well, but in some cases it is good to have debt and your money can be better utilized elsewhere. At the rates that mortgages are today (sub 4% for a 30 yr fixed) I’d argue that this is actually very healthy debt.
Here is a simple example: Assume in 2016, you want to buy a $100k house and are deciding whether to buy it using your 100% of cash savings or 100% mortgage. Borrowing $100k mortgage from the bank at 4% will cost you $71.9k in interest over 30 years. At face value, it always sucks to pay the bank $71k for a $100k house, however by borrowing it from the bank you still have that $100k in cash in your bank account . Let’s assume the same day you buy your house with the mortage, you invest that $100k and make a very healthy 8% after-tax profit compounded for the next 30 years. Congratulations, that $100k investment in 2016 just made you $1 Million by 2046, for a net profit $of 934k. Even at 4% after-tax return, the power of compounding delivers you a net profit.
This same logic applies to paying of your debt midway or even late into the life of the loan, however compounding works best over longer periods, when there is a healthy and stable difference between the cost of the debt and the expected returns on your investments, and you can predict both the costs and the returns with relative accuracy. There is debt you would want to pay off first, especially if it is above your return on investments (i.e., >10%) or highly variable that can spike in hard times and put you in a cash flow crunch (e,g., adjustable rate mortgages, private student loans, or credit cards). I also won’t discount the euphoria from paying off your mortgage and waking up debt free, and the general increased flexibility in your monthly cash flow. I’m currently renting and really like not having to make that monthly mortgage, however I’m about to buy a house again and despite having decent cash reserves it will be a mortgage with 20% down as there is a clear opportunity cost of going completely debt free.
It sounds like you want to have more cash-flow flexibility in the next 3-4 years, so the 30 years example may not seem relevant. As an alternative to paying down your principal I would still recommend you consider this as an option: take that money that you are about to use to pay off your principal, and instead invest that cash in a special investment account (i.e., open up a new account, or put it all into a unique fund that you won’t mix up with other investments). Put it in something that is fairly stable and won’t drop 10-20% in a down market , but still gets you an after-tax return above your mortage interest. When you are ready to retire and go completely financial independent, just set up the investment account to withdraw the monthly mortgage payment every month and have it paid direct to your mortgage company (note: I ignored transaction fees for simplicity, but maybe quarterly withdrawals are better; also many investment companies now offer checking accounts with direct bill pay options!). This way that money is compounding up to the point you are ready to quit your job, and then it will be there to self-fund all remaining mortgage payments. It’s like creating your own personal annuity.
People will argue that your balance could decline (especially in down markets where you don’t earn your average rate), but that’s offset by the years of compounding before your retire, your principal balance will continue to be paid down every month, ongoing tax deductions from mortgage interest, and once you retire you can take that freed up cash flow and reinvest it however you see fit. Variability in market returns has to be accounted for either with solid diversification, structured annuities, or using something similar to the 4% retirement rule. That all depends on your appetite for risk and timelines. Simply put, investing that $100k today and managing the cash yourself, will provide you with a much better return and future cash flows then giving that $100k back to your mortgage company.
It can be very hard to see and feel this type of concept anywhere but in Excel, so I recommend you model out some scenarios based on your timelines, investment returns, monthly principal & interest costs, etc, and just see what it shows. Don’t forget to include the tax benefits (take the annual interest and multiply it by your marginal tax rate. Use last year’s tax return as a reasonable estimate, although it should get x% smaller every year).
Sorry…got a little carried away there! I’m not a blogger, but I guess I felt like being one today. Back to work!
Hi DC — Glad you found us! You make a good point, one which we have written about extensively. :-) The math all makes sense — assuming up markets (which recent history proves we can’t always bet on), but there is another big factor that matters a ton for early retirees: Obamacare. We stand to get about $9000 a year in Obamacare subsidies with our income nice and low in retirement, because we won’t need to cover our mortgage payment. If we had to have enough income to cover our mortgage payment, we’d lose nearly all of that subsidy, and that subsidy far outpaces the gains we’d make by investing what we’d put against the mortgage to pay it off early vs. paying the minimum. As far as we’re concerned, the ACA health coverage subsidies are a game changer on mortgage math, and are worthy of VERY serious consideration by anyone planning for FIRE. :-)
It sounds like you did not read DC’s explanation. He is not talking about having active income to make your mortgage payments. (He is talking about having a liquid investment account that is earning a higher rater of return than your mortgage interest rate. Then using that account for auto-payments of your mortgage, while leaving the remaining balance to continue earning you returns at a higher rate.)
I understand exactly what he was saying. My response was introducing another factor worth thinking about that argues against maintaining debt.
Good luck!! I’ve never mapped out my plan to ER officially although I think it would help to see it visually. I need to get on that ASAP! Thanks for the inspiration!
Hey thanks! Yeah, get on that! :-) Mapping out your plan is half the fun, so I say go for it.
I love reading about your plan! I agree that saving for adventure and experience is super valuable!
Thanks for reading! Glad to have you along for the fun. :-)
Can you tell me why didn’t you consider REITS to get monthly income plus be protected against inflation, instead of funds that requires buy and sell?
Hi Douglas. We definitely considered them, but didn’t feel they match our goals. Plus, the 2008 financial meltdown taught us to be wary of securitized real estate offerings. Folks like JL Collins no longer recommend REITs, and the truth is you get exposure to the real estate market by being invested in total stock market index and total bond market index funds. So we have that part covered. By the time we retire, we’ll have a good chunk of our cashflow needs covered by the dividends our holdings kick out, so we won’t actually be selling all that many shares each year. Thanks for reading!
Thank you very much for you reply. Can you really depend on dividends? I mean, in Brazil companies are required to pay at least 25% of the profit on dividends and we can’t depend on that. Imagine in USA that (for what I know) there is no such rule. What if most companies decides not to pay dividend? While in REITs you get actual rent montly. The securitized real estate offerings is another thing as its debt of mortgage, different than rental from commercial/industrial areas.
My questions are actually for my own learning not to criticized your decision. As I’m in the same path, but I’m in a total different reality. In Brazil I would never put 70% on stock market, seems way to risky. Japan has a lateralized stock market for over 10 years, same as Brazil.
It’s a fair question, and I wish I could speak better to the situation in other countries! It’s true that U.S. companies are not required to distribute dividends, and many never do (tech companies, especially). We’re basing our thinking on our dividend track record, and how much the funds have typically been generating per share thus far. Of course that could change, and that would trigger our other contingencies, which include: selling more shares (our plan allows for this), reducing our spending in retirement (our plan allows us to cut at least 40% of our spending before things really get painful), downsizing to a small house (we have more space than we need), selling our rental property (it has gained significant value since we bought it), or living in an RV full-time while renting out our primary house or selling it. We are definitely risk-averse in our planning, so we have many back-up plans in place to protect us should market conditions change — I recommend everyone have multiple contingency plans in place for peace of mind, if nothing else.
As for REITs, I wonder if they are different in Brazil vs. the U.S.? Here, they are exactly securitized mortgages: http://www.investopedia.com/terms/r/reit.asp. And that’s something we’re not comfortable with, besides that we get that exposure through our portfolio in other ways. We absolutely respect that others will have different comfort levels with investment instruments we choose not to buy, but for us, the 2008 crisis was a reminder that it’s often hard to tell what’s even included in something that’s packaged — remember all those tranches that were labeled AAA but were actually subprime mortgages? We much prefer to have our own rental property and get rent from that, because there we know our tenant, we know the local market conditions, and there’s no wondering about whether what we bought is what it says it is. :-)
Hi. Thank you again for your reply.
REITs are the same in Brazil and US. If you allow me to say, I believe the subprime crisis kind of shocked you in a way that you didn’t consider all alternatives. Perhaps kind of a pre-concept. From the link you sent me: “A REIT is a type of security that invests in real estate through property or mortgages”. So it can be mortgages but also property. If you go to Main Kinds of REITs in the U.S. you will see: Equity REITs: invest in and own properties, that is, they are responsible for the equity or value of their real estate assets. Mortgage REITs invest in and own property mortgages and Hybrid REITs invest in both properties and mortgages.
So you can choose. Here in Brazil we call it Paper Reits (mortgage) and Brick Retis (for those that invest in actual property, hence the name brick). Perhaps it would be interesting for you to take a look at some Equity Reits and see how they performed in the 2008 crisis and how their “dividends” were affected in that period and how fast they recovered.
Here in Brazil, and I’m sure in USA you can also choose Reits based on their sectors. Some Reits invest only in properties to rent for Hospitals or for Universities. Others only industrial buildings, other only in office buildings, other only in Shopping malls. I heard that in USA there is also only for cemeteries. And then you have the ones for residential places. Even that 2008 crisis affected ALL stock markets in the world, some sectors surely were less affected and recovered fast. There is a whole diversification inside Reits only. Ok enough of that, or you will think I’m a broker that sell those :)
I don’t know your current job, but for what you write, you seem to understand a lot of the market. But your contingencies seems a bit scary: selling more shares (eat your assets), reducing our spending in retirement (change your living standards), downsizing to a small house (change your living standards), selling our rental property (eat your assets), or living in an RV full-time (change your living standards). From my point of view, I believe a contingency plan should be something more like invest in things that change their value in opposite direction. Example: If government increase interest rates you get more money on bonds while getting less money on stock market. If inflation is too low, you get more money on pre-fixed investments and less money on inflation tied investments. That is a clear option for me, as interest rate in Brazil is high and there are many options for pre-fixed and tied to inflation investments. I do not know for you. So in this case I cover scenarios like high vs low inflation, high vs low interest rates, economic booming or depressed, without changing living standards.
I go back to Reits again (that is not a recommendation to buy it :) ) because of your last phrase: “We much prefer to have our own rental property and get rent from that, because there we know our tenant, we know the local market conditions”
In Brazil a local residential rent is very low. Around 0.4% a month of the value of the property, while on a REIT I would get around 0.9 to 1.1% a month. Why? Simple because my small residence cannot compete in rental value to a skyscraper in São Paulo. They obviously get more money each square meter than I will ever get. Another advantage is that to buy a local residence I need the full money or make a loan, while to buy a REIT I need to buy 1 share each time that costs a fraction of the whole building and this fraction already generates money. Just like stock market I would say. Plus no worries to paint, reform, find a new tenant, etc.
You see Reits as a package of complicated stuff. I see Reits (the brick one) the same as stocks. You own the building you get the rent. Nothing complicated as mortgage packed again and again till nobody knows whats in there.
Enough of that. I would prefer you rebate me on my critic of your contingency plan. I’m about to make mine and I sure can use your experience.
You have clearly given all of this a lot of thought! We’re definitely not opposed to REITs, and you make a good case for the “bricks” kind. Here are a few links that explain our thinking in more detail: This one explains our “two-phase retirement” and how we’re okay depleting our assets between early retirement and age 59 1/2, when we’ll have access to our much larger tax-deferred nest egg: https://ournextlife.com/2016/02/17/how-we-calculated-our-numbers-for-each-phase-of-early-retirement/. This one is focused on our contingency planning and thinking about the role of some small amount of work in the first few years of retirement: https://ournextlife.com/2016/07/18/rethinking-work/. The bottom line is that we only need our taxable accounts to get us through ~18 years, and then we’ll be in good shape to access our large 401(k) savings, which will keep growing in the meantime. And our calculations are based on very conservative rates of return, so we really don’t expect to need to use any of those contingency plans. We do plan to sell shares, but we have enough saved that that is just fine. And we include bonds in our portfolio (https://ournextlife.com/2015/08/10/goals-reality-and-quirks-our-asset-allocation/) for the reasons you said. The contingency plans are really just there to help us sleep at night, to know that we have several back-up plans in place should we see another major financial meltdown. :-)
Thank you for the links! That is what I was looking for.
I wish you the best in your new life! Perhaps some day we will meet while doing some parachuting, hiking, boat riding, you name it :) You are very lucky to have your spouse on the same boat.
All the best.
You’re welcome! And all the best to you, too! Hope to see you out there. ;-)
I love the Venn diagram. It’s a very clear visual way to present your values and what activities will help you follow those values. I might have to steal that idea for myself.
Fortunately we did not invent the Venn diagram, so you’re not stealing a thing! ;-)
I love this journey and the chart at the end! It really sums up everything I think about doing with my time when I eventually reach FI. Thanks for sharing and if you have sometime, check out my journey on my blog, FI by 2024.
Thanks! Pretty fun to dream about this stuff, isn’t it? ;-)
“We’re not trading our careers for jobs. We’re trading them for permanent freedom.” Yup yup yup. Feels like we’re living life in parallel my friends (2 pooches of our own). Thanks for sharing your journey in such a fun way and emphasizing it’s not about the money.
FIRE is a loaded term, isn’t it? Loaded with assumptions and expectations as opposed to what it really is: freedom to do what you want when you want.
I’m still “making money by working”, but it’s on what I want to do for others (aka “on my terms”). The idea that we won’t keep making some type of earned income seems pretty unlikely. I just happen to be getting paid for what I want to do. It feels like free money, really. Mr. F2P hasn’t “retired” from full-time work yet and I sum that up to liking what he’s doing right now (growing/learning). He’s planning a few things that seem promising and I’m just happy to see him starting to try the freedom on for size.
Aw, hooray for two dogs! They are better in pairs. ;-) Absolutely right — this is all about freedom to explore and learn and create and not worry about whether any of those things make money! We’re coming around to the realization that we’ll make SOME money in retirement, we just don’t want to have to make choices because we NEED the money. ;-) Glad you guys are enjoying working on your own terms!
My question is the premiums for Obamacare are skyrocketing by at least 23% this year. Is that cost considered?
I just found your blog and look forward to reading more.
Great question! We’re working on a post that will address this, but short answer is that you can insulate yourself a lot from the cost hikes if you keep your income in retirement very low.
i am looking forward to your posts re current Obamacare if Trump doesn’t kill it. I was counting on it for early retirement although I have an option of moving back to Canada if I really wanted to retire early and have free healthcare.
Can I just say how jealous I am that you have the option to go to Canada? I know we could qualify in terms of assets and skills, but now we’re a bit too old for the fast-track entry. Sigh. Gotta stick it out here! And yes, we’ll for sure keep writing about healthcare coverage as we learn more!
I found your blog through Rockstar Finance and then was redirected to your mortgage pay off post which then lead me here. I am new to the whole investing thing (just started my 401k 2.5 years ago) so please excuse the question I am about to ask if it seems to elementary. Where do you keep your “well-diversified Vanguard index funds”? For example all my current investments are in an Roth IRA and 401k, should I be setting up a regular brokerage account aside from these and being investing in these index funds? This investing business is scary for me.
Hi Brenda! Thanks for reading. We are not remotely qualified to give investment advice, so I won’t even try. We’re big fans of Jim Collins’ approach if you want to check him out: http://jlcollinsnh.com/. Both his blog and his book, linked on the blog, are great. We have our taxable funds in a range of Vanguard index funds, mostly the S&P index fund and the total bond market fund, but also some total market stock fund to get international stocks. And our 401(k)s are with our work brokerages, so we don’t have as many choices there, but we’re also in a range of different funds in each of those. It *does* sound like you may want to set up an investment account with a low-fee brokerage like Vanguard or Fidelity, though, if your goal is to retire early — most of your IRA and 401(k) funds will be tied up until you’re 59 1/2, and taxable investments will allow you to access those funds without penalty in the earlier years. Good luck! :-)
Has the Trump plan to obliterate Obamacare changed your planning and requirements? Will healthcare costs for you rise considerably? I hope not.
Unfortunately it’s all still TBD! We don’t know much at this point. We are with you in hoping that costs don’t skyrocket, but it’s too soon to know for sure. Here’s a lot more on how we’re thinking of it all right now, if you’re interested: https://ournextlife.com/2017/03/13/health-care-abyss/
You can tap your tax deferred IRA dollars penalty free by setting up a stream of substantially equal annual installments under the IRS 72T regulations. We did this for my father in law in 2000 when he retired at 55 and then left the remainder of his IRA in place for regular withdrawals at 59 1/2. Those penalty free 5 years of income bridged him comfortably until he was ready to tap the larger of his IRA funds. This approach could change the way you deal with the rental income / taxable accounts drawdown AND help fund the taxes on a Roth Ladder.
Thanks for sharing this experience, Phil. We don’t plan to tap that money, but it’s a good reminder that we can if we absolutely must!
Hi, it looks like you have great plan to live your dream! I’m heading towards a military retirement in a few years and am considering some similar options. But… I don’t want to rain on your parade or start a hyper-political discussion, but one aspect of your plan really jumped out at me as a bit questionable. Your health care plan to minimize your income so that you qualify for Obamacare subsidies seems kind of exploitative to me. You’re basically planning to stop working to follow your dreams while expecting the government to force other people to pay for your healthcare. I think a lot of people would think this is a prime example of why they oppose Obamacare and other wealth redistribution programs.
As a soon-to-be military retiree who will have the option of relying on the VA for healthcare (and all that entails), I guess it might seem a bit hypocritical for me to point this out, but I feel like I entered into a contract with the American people and VA healthcare is a benefit I receive in exchange for the higher personal risk and costs of a military career. An argument could be made that Social Security is a similar public contract. But Obamacare subsidies were intended as a helping hand to provide poor families with the means to purchase individual health care, not really as a payment to enable forty somethings to live a life of adventure bankrolled by other working-age folks. Again, I’m not trying to bring you down when you’re at the cusp of something you’ve been working toward for a long time, but it might be something to think about.
I’ll be honest — we’d 100% prefer a single payer system where we would be FAR less expensive to ourselves or the government because we work hard to stay healthy, and then whoever is paying would only be out the cost of the care we actually use, and not diverting huge amounts of our premiums to insurance company profits and unnecessary procedures. Sadly, that’s not an option. I understand this kneejerk reaction, but it’s a fallacy that only this limited number of things is subsidized. Nearly everything we do is subsidized by the government in some ways, and those who argue with “wealth distribution” conveniently ignore that most subsidies actually go the other way: the poor subsidizing the wealthy. I did an extensive post about it here: https://ournextlife.com/2016/11/16/subsidized/. Also, if it makes you feel any better, we have paid over a million dollars in income tax, funding a lot of things WE don’t believe in (same as folks who don’t believe in paying part of the cost of our health care), so we have certainly paid plenty into the system to make up for what we may offset in retirement.
Thank you for your service! I’d argue you should have no hesitation at all about using VA care in retirement if you’re entitled to it. It’s only offered to those with a disability rating, and if that’s true for you, then the least we can do for you as your country is make sure that you don’t have to worry about whether you’ll get quality care. And if you’ll be retiring into TriCare instead, then that’s like any health care you might be entitled to as a part of a pension system. Either way, you’ve earned it.
Thanks for reading!
Like you are planning, I “retired” while I was in my early 40s in the late 1990s. I worked part time doing odd jobs and managed my real estate holdings and stock portfolio and kept an eye over my aging mother. Then, at 44, I took a full time gig since the benefits were really good and the economy was not. It lasted 12 years. Toward the end, the job turned into a nightmare due to lots of “organizational changes” and stress from the unexpected death of my sister, who was the primary caretaker of my 92 year old mother. I retired again at 60, four years after the death of my 96 year old mother. It was kind of hard at the beginning not to have something to do when I woke up in the morning. Sometimes, I wouldn’t even bothered to get up from bed since there was “nothing planned” for the day. I hung out at the beach, if the weather was sunny and went to the gym. We bought a second home at a golf development. My partner was still working a full time gig and I could travel whenever I wanted to. So, I got two part time, 15-20 hour gigs.
Recently, one year after retirement, I have returned to full time work since I was a bit bored at home and the part time jobs didn’t include any benefits, even though my healthcare was fully covered by my old job. Now I plan to work another 5-6 years until full retirement age for a larger pension payout and social security and medi-care to fully kick in.
My sizeable real estate holdings and stock portfolio will generate enough income for the next forty (40) year without having to touch the principle. My healthcare will be covered 100% either by my old company or my partner’s job.
So, why am I still working? what is the moral of the story? Be careful for what you wish for?
Thanks for sharing your story! So interesting! I’d love to know — each time you retired, did you have a vision for what you’d be doing after you left work? I think that’s huge, and I think we could easily find ourselves drifting if we hadn’t put tremendous thought into what we’ll be doing post-career. Not to say that we can anticipate every challenge because obviously we can’t, and we haven’t actually retired yet, but I am hopeful at least that I’ve lined up enough fun projects that I want to work on in retirement to not feel bored. :-)
Hi I stumbled upon the site and would like to thank you! FI has always been a goal in the back of my mind. I have made some plans sometimes I wonder is it really worth it? Finding ournextlife has given me inspiration again.There is so much information here on the topic to keep me motivated and going!
So glad you found us! And there’s tons here to read if you enjoy it. ;-) If you’re struggling with the question of whether it’s all worth it, I highly encourage some deep thinking about WHY you got on this journey in the first place and what you want to do with your life. If you struggle to find a satisfying answer, there is no shame in continuing to work! :-)
I think this is actually much simpler than it seems and I am fortunate enough to have had a finance professor share this perspective with me 30 years ago that set me on this path before I even started my career. I can summarize it like this (the lecture that day was about the time value of money and compounding interest but the life lesson was even more valuable)
Do you live to work or work to live? Do you live where you play and go to work or live where you work and go somewhere else to play? The discussion was meant to get you to think about the value of work in your life. For emphasis he added two other valuable points to consider
At the conclusion of your work career there is no hall of fame, you can take your kids or grandkids to to see how great you were at work. The city fathers won’t put your statue in the town square or your last employer isn’t going to put your bust in their pantheon of great workers for the new hires to aspire to. You don’t want on your headstone the inscription I wish I had spent more time at work
Bottom line is work is a means to an end and if you plan well now as 22 year olds you do not have to win the lottery or invent the one thing everyone must have in order to be financially free to enjoy your life, you can avoid the point where work consumes you until you die. He gave some great examples of young graduates realizing as they enter the work force that they can’t (and shouldn’t expect) to live the lifestyle they just left as kids living with their parents and that if they tried to they would miss out on saving early in order to be free of work later in life. Only you can invest in yourself
He then went on to demonstrate the time value of money and the benefit of starting early. This was right after 401ks were invented and the savings and loan crisis was under way and the pension guarantee Corp was in trouble. Message was save when you are young in tax advantaged accounts, give up the dream that you will forever be remembered as an awesome employee, do something that pleases you where you can be near or at where you play and down the road you will be better off financially or emotionally in ways you can’t even imagine as 22 year olds
I am 51. I never forgot that lesson (and the one about life insurance, buy term and invest the rest and ALWAYS pay yourself first were good ones too). I am retiring in January. I love what I do, but I planned for this day for 30 years and I have zero regrets about this decision because it is part of the plan, it isn’t a new plan
Good luck to all of you fortunate enough to start early when the saving sacrifice is actually small but result in the maximum long term benefit (it’s why my teenagers have Roth accounts and not bank accounts). I hope you all FIRE yourselves some day too
I’m so curious — if you’ve had all the answers from the beginning, what was it that kept you working all through your 30s and 40s, and not retiring until 51?!
Thanks for the question
Also a simple answer. I waited until I thought I was both ready to start my next phase of life and we had made “the number” also if you have been a part of something with others there is a graceful exit because you don’t crap on friends
If we had hit the number 2 years ago I would have retired at 49 – likewise if I had hit it at 40 the transition would have started then but we weren’t quite there yet. The most important point of my post is that I was fortunate to have had someone create awareness for me and that because of that I made a plan.
This blog can help people at any time make informed choices about what FIRE means to them but let’s face it it is much harder to achieve RE if you didn’t start the FI process early enough. The ONL couple have given of themselves willingly in hopes that others can learn. All of us here should think that way and the intent of my post was maybe someone would think about what FIRE meant to them or if they weren’t sure or felt guilty that it’s ok to think about FIRE for themselves.
Thanks for sharing your story! Always glad to get info out there that might help inspire others. :-)
I’ve been reading many of your posts looking for your thoughts (though I couldn’t seem to find it) on this piece of the FI puzzle. It is fairly universally accepted in this community that you need 25 x your annual expenses before you can ‘retire’ or be financially independent. However, I was reading a post by Joe at Retire by 40 and his thoughts are that 25x will not be enough. Several other commenters noted the same. I am aiming for 30x just to be a bit more conservative. What are your thoughts on this? Is 25x too low?
And wanted to tell you how much I love your blog! Glad to hear you will be keeping up with it when you are FI!
Hi Tracy! Great question. Here’s a recent post I wrote on this very question: https://ournextlife.com/2017/05/10/conservative-projections/. Short answer: I think it’s smart NOT to plan for the 4% rule, and to play it safer. Thanks so much for your nice note! :-D
You guys are awesome! Keep up the inspiring work!!
Thanks so much, Erin! :-)
I love that you have planned out so many contingencies – I think that’s the only way I could comfortably RE. That being said, my husband’s godfather retired at 55 (and is now 62) and had planned to do some part time work. He’s got the stamina of a 20 year old, so physically or mentally there’s nothing holding him back from working. His only problem is he is too busy to work a job, though he does some regular volunteering. Watching him, I can definitely see why planning on working for money even “a little” as a definite part of a plan may not be a great plan unless it’s a concrete part.
Yeah, I agree with you on that! If you have a specific plan and actually know the work you want to do and can do in ER, great. But a vague idea to “work a little” is perhaps not real security, which matters most to those of us who are planners and need that certainty to sleep well at night!
As I started reading your Plan, my first though was “of course”. But I began to realize that you are “planning” essentially what my wife and I did. Our “plan” was more nebulous, our earlier careers didn’t support “retirement” saving but we did what you did when we were able and put it all together as a specific “plan” before it all hit the fan. By then our careers/jobs changed, like yours they accelerated, our daughter graduated college, the 401Ks grew (not huge but HELPFUL!), all debts were eliminated, the dream house got built and paid for and we kept adjusting our spending to live more and more below out means. In the end we lived on one salary only — the other and more went into that retirement fund. I hope that looks fairly familiar. :<)
A couple of thoughts for you early retirees. One thing that blindsided us on health care was we learned after-the-fact — that we went from a huge "healthy workers" health insurance pool to a much smaller and more expensive "retirees" insurance pool. It didn't happen until the next year, but when it did, we suddenly were hit by a 300% increase in health insurance payments. It may not be the same for you, but do check into it beforehand. Since then, my health insurance budget has included a minimum 10% annual increase.
Also, remember that your health is one of your greatest assets. As you eventually grow older, health can change quickly and unexpectedly and could result is more or less permanent changes in your plans and your expenses. There is much meaning in the words of one of our favorite fictional characters: "Live long and prosper!"
That does sound familiar! We started living on one paycheck several years back, and have been living well below that for some time now (which I sometimes still can’t believe, but feels awesome).
Great stuff! I just found your blog, and love how you made your goals public and are almost there!
Hi there! So glad you found us! ;-)
I like your plan! What type of paid work do you have in mind, doing some of what you did at your careers or different? Trying to get an idea what options are out there besides the mindless “Walmart” greeter!
Hahaah — yes, don’t plan your early retirement around being a Walmart greeter! ;-) We expect to have almost 30 years of early retirement, so paid work will likely take a lot of different forms! We’d expect some to look a bit like what we do now, but it could also be working as ski instructors if we feel like being stationary for a winter, taking on more creative projects (like a few we have in the works — stay tuned!), or consulting local nonprofits. But I’m sure there are plenty of other opportunities out there that we just haven’t discovered yet!
As MMM attests, you don’t realize the opportunity out there until you don’t HAVE to work. Just building this blog could be enough for many years! If you keep up your skills or develop new, there will be some opportunity. Just need to stay ahead of the curve a bit and keep an open mind. Thanks for responding.
Absolutely. I HOPE the blog keeps being fun for a long time!
I saw your blog mentioned on the WSJ today. I was curious about your assumption for Medicaid. Do you think Medicaid will be available when you hit 65? Do you have a plan if the age limits change? thanks sam
Hi Sam — Do you mean Medicare, the program for seniors, as opposed to Medicaid, the program for low-income people? We are assuming that Medicare will be available for us from 65 onward, but given that it is not free once you build in all the various parts, we are assuming that we will always have to pay something for our health insurance.
I just bumped into your blog and love what you’ve accomplished. Congratulations. Any advice on how to get started on this journey? Any suggestions will be appreciated. Thank you. Paco
Thank you! We’re big fans of the book How to Retire Early by Robert Charlton as a starting point. Or Your Money or Your Life by Vicki Robin. Good luck!
Something to think about for early retirees who will depend on a number of different income sources… Consider that the Trump tax plan that is in the world right now may significantly impact the amounts and ways that we can shelter money from taxation. For example the maximum 401k contribution may be decreased from 18000 per year to 2400 dollars per year. Also, it may not be possible to itemize deductions, and this will negatively impact many folks who depend on deductions for tax planning. Be careful out there.
You probably saw that that 401(k) change did not make it into the current proposed bill, a bill which will still certainly change before any votes happen, and then again in the Senate. (The 401(k) limit change was clearly leaked two weeks ago to create outrage and kill that provision.) And the interesting thing is that a standard deduction with fewer itemizable deductions would actually be great for us given that we’ve paid off our house (so no mortgage interest deduction) and won’t own much state tax to deduct. For folks in the earning/accumulating phase, it could be quite different, but it’s the same idea as looking at states — it’s so dependent on your own situation.
Hi guys – congratulations on you financial independence. I have a few questions that don’t have difinitive answers but I’m interested in your opinions due to your previous careers along with your FI goals. We have two young children and are looking to undertake early retirement so therefore college costs are something that we have to consider. Along with those costs we clearly have to manage healthcare cost and even though we are not budgeting for social security we are still hopeful that it will be around of us and for others. I guess my overriding question which applies to all of these issues is what is your future predictions for all of these items? I am Englishman who lives in the U.S so I am not as familiar with the U.S political system but I can do simple math and it would seem that with college costs and healthcare moving at more than double inflation something has to give eventually as more and more kids will be burdened with crippling debt or wont be able to attend college and more and more people will not be able to access healthcare. Add this to the discussion of social security potentially being diminished or abolished I just don’t understand the math. I cant see how social security can ever go away as too many people rely on it and that is only going to be more preveltant especially with stagnant wage growth. Anyway, we will budget very conservatively for all these items but look forward to hearing your opinion as to where you think these things will end up within the next decade or so. Good luck with your endeavors.
Now that obamacare is under attack, do you think it will make it hard if not impossible to retire early without MUCH more money? I feel like this has really undermined my own plans :(
I applaud your success, and I can only hope you continue to live the dream! Are there any tips you can provide someone as the latest expansion is clearly about to end?
I cannot help see that by accident or design your wealth accumulation started soon after the biggest recession since if not the 20’s then the 80’s. How can someone hope to excel to your levels now at the age you started ten years ago in the current and clear future economic climate?
P.S. Although sensitive, do you have numbers to go along with your charts? I understand if you’re skittish about sharing your numbers.
I wish we would have stumbled upon your journey earlier in our lives, 3 kids early in life, struggling to make ends meet, not always the best paying careers, but now at 51, learning the options we never really thought about in our younger years. We now have better paying jobs, last child graduating this year and even though recently moving to a different home, we are working through the 10 questions and working towards a different path to a sooner retirement. Our question is about the investments. As the husband, my retirement is a pension, if I can make it to 62, a good retirement and use of accumulated sick time to cover health insurance to 65, and the Mrs. a decent 401K that is growing slowly, but wondering about saving through taxable investments, if that is the right vehicle at our age? Can we save enough to see the compounding work in the next 6-8 years and enjoy an earlier retirement by 60 or before, or is a different type of investment a better path for our age group? We understand you can’t give investment advice, just seeing what your thought would be on the taxable investment versus another path, believing we can start out with $3,000 a month for investing and continue to ramp that up as we pay off all debt besides mortgage in the next 6 months, which could bring us to $5,000+ a month for investing. Thank you very much from a non-math guy :-)!
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