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Early retirement


rohitc99
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I think some of the board members have retired quite early (from traditional jobs) and have become full time investors. can you share how you have worked out the math ? the standard retirement calculators assume an average return (Which most of boards members will do better) and are not very helpful for planning.

 

also have you taken into account one off expenses such as college fees, unexpected medical expenses ? any pointers, suggestions would be welcome

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Don't focus on the calculators; focus on what you are going to do once you retire.

 

Most people re-invent themselves and will pursue a 2nd or 3rd career for a good 15-20yrs+, after 'retirement'. When Jagger can still play, & swivel the money-maker at 70, the whole idea of 'early' retirement becomes pretty ridiculous. Do something completely different if you can - especially if you don't really need the money.

 

Carny barker had a certain appeal, but the misses wouldn't go for it  ;)

 

SD

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thanks SD. maybe I did not state it clearly in my post. I plan to be a full time investor, managing my own capital. with 25 yrs to go for traditional retirement, how should I look at this ?

I think I can do a 3-5% better than the market - not 30%+ levels some others on this board can achieve. so how have others gone about in terms of the math ?

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Retirement planning is quite straightforward in an excel spreadsheet, I don't know why people rely on web sites/financial formulas.

 

To reflect what Eric has said, it's very likely that you will die with 2-3M$ if you were conservative in your assumptions. Better to die with a few dollars then to starve at age 70. It must be really bad to retire with no money... all the time in the world and no means to enjoy it.

 

BeerBaron

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Back of the napkin retirement planning:

 

1. Estimate your normalized annual spending, after tax.

 

2. Add your expected average tax rate. 20-30% or whatever. This is how much you need to draw from your portfolio before tax.

 

3. Multiply #2 by 20x (5% withdrawal rate), 25x (4% withdrawal rate) or 33x (3% withdrawal rate). This is the magic number you need to save before you retire.

 

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Try this planner which allows for variable returns, inflation, expenses, income etc.  Its' versatile and lets you stress test your results.

 

http://www.flexibleretirementplanner.com/wp/planner-launch-page/

 

That's a good tool.  I love monte carlo simulations as opposed to making averaged assumptions as inputs.  That's the worst kind of analysis and thinking.

 

The biggest expense that I can see for early retirees is buying your own medical insurance plan in the U.S.  The rates as one gets older is quite expensive--at least in my opinion.  Or, you could just qualify for Medi-caid since there is no asset test anymore.  But, your ability to find hospitals and doctors willing to take you on will be much harder.  Sad but true.  I looked at HMO low deductible plans, and for 55 year old, it's almost $5000 a year.  And that keeps getting higher as you get older.  So, I think you'll probably need to spend around $75k total on private insurance until you can reach Medicare age of 65. 

 

Finally, if I do run out of money and am still alive, I plan on just kicking the bucket somehow.  LoL!  Probably just jump off a bridge.

 

edit: oops, I said 75k a year.  I meant 75k total

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I'm 53 and sold my company but they offered me the opportunity to continue running it.I accepted because I would rather stick a fork in my eye than play golf everyday or go to Florida all winter.The money is one thing but for me it was be able to go to work after I got the big payout.I hope they let me do this for another 10 years at least and I don't need a job I could retire if I wanted but I just don't know what I would do.Cheers

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Most Monte Carlo-based studies I've seen indicate that if you only withdraw 3% of your (balanced) portfolio a year, your money will be very likely to continually appreciate.  So, my personal strategy is to take an even more conservative 2.5% withdrawal rate.

 

In other words, for every dollar of income I want in retirement, I want $40 of savings. 

 

If I were older, I wouldn't be this conservative.

 

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I think that even if you actively invest, rather than passively index, as the 3-4% Safe Withdrawal Rate assumes, you should still use 3-4% as the Safe Withdrawal Rate.

 

After all, you could do worse than the market. If you do better than the market, then your assets will increase in value and your retirement date will still move up - you're simply not factoring in future continued out-performance, which you really shouldn't be.

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The investing routine I was using while working a day job was very efficient in prioritizing my investment research on my most important ideas.  I had limited time and would use it wisely. However, once I retired early to do more investing and pursue other interests, I found I lost my prioritization focus and initially spent too much time on the marginal investment activities that I didn't have time for before, rather than spend more quality time on my best ideas.  For me, developing a daily/weekly routine to keep myself focused on what's most important remains key.

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Guest longinvestor

As the OP has mentioned, value investing success and early retirement go together. Good for you that you are considering this with plenty of compounding years ahead. My own situation is that I am easing into retirement. Given that much of my networth is in retirement accts which are doing well (high double digits), I've been doing a 72t withdrawal. AKA;SEPP withdrawal and found a simpler, lower paying job. I plan to keep cutting back work hours while increasing time for passions and volunteer work. On the investing side, I've started sharing my modest success story with friends, sharing my mistakes. I tell folks what you avoid doing is perhaps more important than what you do. Most of these folks are simple minded. My goal is to form a group to learn together. I have no interest in remuneration from this.

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As the OP has mentioned, value investing success and early retirement go together. Good for you that you are considering this with plenty of compounding years ahead. My own situation is that I am easing into retirement. Given that much of my networth is in retirement accts which are doing well (high double digits), I've been doing a 72t withdrawal. AKA;SEPP withdrawal and found a simpler, lower paying job. I plan to keep cutting back work hours while increasing time for passions and volunteer work. On the investing side, I've started sharing my modest success story with friends, sharing my mistakes. I tell folks what you avoid doing is perhaps more important than what you do. Most of these folks are simple minded. My goal is to form a group to learn together. I have no interest in remuneration from this.

 

It feels a little dangerous to talk about your successes with people who may not have had similar successes. They may try to do what has worked for you but end up doing very badly because they don't truly understand what you've done.

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I'm 53 and sold my company but they offered me the opportunity to continue running it.I accepted because I would rather stick a fork in my eye than play golf everyday or go to Florida all winter.The money is one thing but for me it was be able to go to work after I got the big payout.I hope they let me do this for another 10 years at least and I don't need a job I could retire if I wanted but I just don't know what I would do.Cheers

 

Stone19, just curious, but what does your company do?

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so this is what I understand from the replies

 

- figure out post tax expenses and keep withdrawal rates around 3-4% or lesser for a margin of safety

- kids college : this is a one time expense. add this to the total (assuming I am going to pay for it - which is likely). this I can estimate.

- medical : this is my key concern. as this could be the black swan and cause a huge outflow if something were to go wrong, I should look at the best options in terms of insurance which caps my maximum payout ? better to keep paying a high fixed premium but cap the total liability in worst case scenario ?

 

does this summarize  how much I need to have assuming I will not drive myself crazy in early retirement reading 10Ks :)

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Guest longinvestor

As the OP has mentioned, value investing success and early retirement go together. Good for you that you are considering this with plenty of compounding years ahead. My own situation is that I am easing into retirement. Given that much of my networth is in retirement accts which are doing well (high double digits), I've been doing a 72t withdrawal. AKA;SEPP withdrawal and found a simpler, lower paying job. I plan to keep cutting back work hours while increasing time for passions and volunteer work. On the investing side, I've started sharing my modest success story with friends, sharing my mistakes. I tell folks what you avoid doing is perhaps more important than what you do. Most of these folks are simple minded. My goal is to form a group to learn together. I have no interest in remuneration from this.

 

It feels a little dangerous to talk about your successes with people who may not have had similar successes. They may try to do what has worked for you but end up doing very badly because they don't truly understand what you've done.

Many of this group have been successful as real estate investors but have not done well with investing their savings. They have regular networking meetings for many years now on topics of mutual interest like health, taxes, charity etc. I got invited to share ideas re: investing. Because they have not done well here. No, there is no danger at all. All they want is to stop losing money.

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As the OP has mentioned, value investing success and early retirement go together. Good for you that you are considering this with plenty of compounding years ahead. My own situation is that I am easing into retirement. Given that much of my networth is in retirement accts which are doing well (high double digits), I've been doing a 72t withdrawal. AKA;SEPP withdrawal and found a simpler, lower paying job. I plan to keep cutting back work hours while increasing time for passions and volunteer work. On the investing side, I've started sharing my modest success story with friends, sharing my mistakes. I tell folks what you avoid doing is perhaps more important than what you do. Most of these folks are simple minded. My goal is to form a group to learn together. I have no interest in remuneration from this.

 

Nice.

 

SEPP withdraws are in my future thinking.. possible the 5 years before 59 1/2  to get me to that I plan on having about  3 year expenses in cash type investments. additionally I think I'll just step back from full time, carry on investing and see what jobs pop up that interest me. I don;t have the need to feel measured by the work I do - its just the means to obtaining the tool I want (cash).  I like the idea of the volunteer work too.

 

Well done sir!

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I'm 53 and sold my company but they offered me the opportunity to continue running it.I accepted because I would rather stick a fork in my eye than play golf everyday or go to Florida all winter.The money is one thing but for me it was be able to go to work after I got the big payout.I hope they let me do this for another 10 years at least and I don't need a job I could retire if I wanted but I just don't know what I would do.Cheers

 

 

Just curious, what did/does your company do?

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so this is what I understand from the replies

 

- figure out post tax expenses and keep withdrawal rates around 3-4% or lesser for a margin of safety

- kids college : this is a one time expense. add this to the total (assuming I am going to pay for it - which is likely). this I can estimate.

- medical : this is my key concern. as this could be the black swan and cause a huge outflow if something were to go wrong, I should look at the best options in terms of insurance which caps my maximum payout ? better to keep paying a high fixed premium but cap the total liability in worst case scenario ?

 

does this summarize  how much I need to have assuming I will not drive myself crazy in early retirement reading 10Ks :)

 

Actually, the best thing to do for medical is this:

 

1) move to Canada if you can

2) work part time for health insurance (in some states, such as Hawaii, it's mandatory for part time workers to receive full health benefits)

3) if you do fully retire, get on Medi-Caid and find local medi-caid providers. 

 

If you have an emergency health scare, medi-caid will cover all of it and you can find good health providers.  The real worry is cancer.  Medi-caid will cover all the costs of that too, but you will need to find a hospital and doctors that will take you on.  Especially a good CCC center.

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