our early retirement plan

Our Next Life -- Our plan for a nontraditional, secure early retirement and adventurous life!

Our next life: beginning late 2017

We knew from before we got married that we didn’t want the ordinary life that we could easily default into. We didn’t want to be 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 ventures.

We have always craved a life of adventure and travel, and we have fewer than 100 Mondays to go until that dream is a reality!

The Financial Plan

The Prerequisites

The only real way to save for early retirement is to well below your means, and we’re doing that in a big way. We make above average salaries, and despite living in a high cost-of-living area, we’re saving more than 70 percent of our after-tax income.

We got rid of our consumer and student debt long ago, so no longer worry about that.

We bought our home in 2011, near the bottom of the market, and bought waaaay less house than we could supposedly “afford,” because we knew our goal was to pay it off quickly. By the time it’s paid off next year, we will have only had the mortgage for about six years.

The Major Plan Components

Our early retirement plan relies on having two major stages of income: before we turn 59 1/2, and from age 60 on, roughly represented here:

retirement_income_healthcare_map_by_era

Income

The first ~18 years of retirement will be funded largely by our taxable investment accounts and, later, by our rental property income, after that mortgage is paid off.

Our investments are primarily well-diversified Vanguard index funds, and we’ll live first off fund dividends, and second off selling shares.

Later, we’ll be able to tap our 401(k) assets, which are well-funded thanks to Mr. ONL maxing out at an early age. At that point, we’ll be able to step up our quality of life significantly.

Income Over Time

Health care

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 get subsidized Affordable Care Act (Obamacare) health insurance for our first 23ish years of retirement, until we’re eligible for Medicare or its future equivalent.

Healthcare Over Time

Optimizing our income to maximize our subsidies will be high priority, along with avoiding unnecessary trades that could trigger capital gains and mess up our income eligibility.

The life part

We know “retirement” means different things to different people. Here’s what it means to us:

Our goal is never to have to work again. We almost certainly will work at some point in the future since 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. But we’re working to save enough that we are never forced to work, and we’ll only do jobs that provide us with worthwhile benefits (like free ski passes, free travel, doing something fun or helping a nonprofit organization we love). We also expect to do lots of free volunteer work for causes that are important to us.

Bottom line: We’re not trading our careers for jobs. We’re trading them for permanent freedom.

We want to live out our purpose, which we think looks like this:

ven_expanded_purpose

In short, we want to see the world, and leave it a better place than we found it.

We hope you’ll stick around for the journey!

52 thoughts on “our early retirement plan

  1. 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.

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      1. Hi ONL,

        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!

        DGI

        Liked by 1 person

  2. Hi guys
    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

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    1. 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!

      Liked by 1 person

  3. 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!!!

    Liked by 1 person

    1. 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! :-)

      Liked by 1 person

  4. ONL,

    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.

    Div

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  5. 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.

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  6. 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!

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  7. 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.

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    1. 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!

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  8. 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!

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    1. 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. :-)

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  9. 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?

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    1. 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!

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      1. 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.

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        1. 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. :-)

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        2. 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 SΓ£o 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.

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        3. 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. :-)

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        4. 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.

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  10. 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.

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  11. “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.

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    1. 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!

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  12. 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.

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    1. 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!

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  13. Hello there!

    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 β€œwell-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.

    Thank you

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    1. 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! :-)

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