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Early Retirement Plan Update 2012

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About three and half years ago, I wrote about our plan for early retirement. I wrote it knowing that planning for things that far in advance are not going to as planned. Still, it is important to put a road map into place and make adjustments along the journey as conditions change.

The plan was a series of five posts covering various aspects of our retirement plan. I encourage you to read them starting with the link above as there is a lot of background that I'm not going to repeat here. To give a complete picture, I'll squeeze them and the updates into one post. As you read this, please note that I'm going to liberal with the vague estimates:

Where We Are Now (Original article)

At the time I put my wife and my net worth at around $400K combined. We keep most of our finances separate and I haven't checked in with recently, so I'll have to take a stab at our assets being between $500K-$600K. The lower end would be due to the decline in real estate prices. Our real estate assets will be covered a bit later.

The next thing to look at is income. Combined my wife and I make in between $150K and $175K a year - pre-tax. After adjusting for taxes that's probably between $110K and $130K. We spend roughly around $60K and $70K a year. That gives us around $50-60K to save. These are estimates and that finally number does sound a little on the high to me. In any case, that's what we'll go with.

My Personal Income (Original article)\

As I wrote above, our finances are kept mostly separate. I run some websites include this one which make me some money. I hope to continue to run businesses into my retirement, but betting on blogs to exist 30 years from now seems a bit naïve. I still think that I'll be able to provide value to people and find a way to turn that value into income for myself.

I also have a Roth IRA and a SEP-IRA with around $160,000 in them. It's dangerous to try to compound that money and project it to 30 years from now, but I'm in a risky mood. With no more contributions and presuming a 4% growth after inflation that could be worth $520K. Since I accounted for inflation (or hoped to) in the growth rate, we can think of that as accounting for at least 10 years of retirement if use $50K a year for living expenses. It is actually quite a bit more than 10 years since it will continue to earn interest during those 10 years while I'm withdrawing funds to live on. Bonus points to a commenter who can connect me to a good financial calculator for this. (Note: Bonus points can't be used for goods or services.)

I also have a rental property. It has 21 years of mortgage on it. After I do some necessary updates, it should throw off money each month. Or, in a worst case scenario, it would be a place big enough for my wife and I to live in, eliminating our cost of housing (except those pesky property taxes). Lesson: Never underestimate the value of the forced savings of a real estate purchase.

The hope is that between my business, my retirement nest egg, and my rental properties, I've got enough diverse assets to cover my needs.

My Wife's Plan (Original article)

As I mentioned on the article earlier this week, my wife gets a military pension after 20 years of service. I supposed this pension wouldn't qualify as retiring, but she'll be 44 at the time, which qualifies for early. I went into great detail a variety of options, but it looks like her pension is worth anywhere from $50,000 to $80,000 depending on how long she works, a potential promotion, etc. That's adjusted for inflation, which is very important. If she only had this, and I continue to pull weight with my plan above, we should have an income nearing 6 figures, or possibly over. (Side note: The original article included analysis from Plugged in Finance, who I haven't heard from in quite a long time, but they are still blogging, even writing an article earlier this year of what is my military pension worth?)

My wife doesn't expect to retire after she leaves the military, so we'll be able to "double-dip" in the income bucket for a few years. Of course what we expect and what happens might be different things. She's also been contributing to her TSP (military's version of the 401k) and Roth IRAs which will add a traditional retirement portfolio to our cash flow. She has a rental property as well and it will be paid in full in 18 years. Like my rental property, with some much need updates at that time, it will start to pay us a monthly income.

Obstacles, Expenses, and Conclusion (original article)

When I wrote the series almost 4 years ago I didn't have clarity on a number of things. The biggest factor is that we didn't know if we'd have children. With a baby boy on the way earlier this year, that question is at least partially answered. Using the calculator at Baby Center, it looks like it might cost $400K. The site budgets $8300+ a year for housing as the biggest expense. Since we plan to stuff junior in a closet, we can save some money there (just checking to make sure you are following along).

Update: One huge factor that I had forgotten about in writing this article originally is that the Post 9/11 GI Bill. It allows my wife to transfer the her education benefit from the military to our upcoming child. I wasn’t sure that we qualified, but over the last couple of days, it appears that we do. The benefit is significant… free 4-year tuition at a state school (or $17,500 inflation-adjusted at a private school), plus a living stipend of around $15,000-25,000 a year (it's adjusted for cost of living in the zipcode of the college/university), and $1000/yr for book and supplies. I conservatively estimate the value at $150,000, but it could be much more.

Health care was another great concern I highlighted in the previous article. From my 16 hours in military retirement boot camp, it seems that health care won't be that expensive... about $500 a year for what we have now. This is a heavy burden lifted.

The previous article also mentioned that living in Boston or San Francisco would have expensive housing. We bought another home in Rhode Island last year with a 15-year mortgage. The rent almost covers the expenses, which means that we will be close to having the place paid for by the time we retire. This home is big enough for the three of us (plus our dog). If we choose to make this our residence, it will free our other two properties to produce income.

One thought that I should have mentioned earlier is that I feel that the very definition of retirement is extremely vague. For some it means just traveling and having no responsibilities. I think for me, it will mean still working, but doing something I very much enjoy that happens to make money.

Nearly four years later, I'm not sure we have any concrete answers about retirement. However, one thing I do feel pretty confident about is that we are heading in the right direction. I'm seeing positive progress from a number of sources. In fact there are enough sources that I didn't have to mention Social Security up until now. It will be around in some form when my wife and I reach age 70 (I'm presuming that will be the age it kicks in). That will be an extra lifeline.

What are your thoughts on early retirement? Are you going with the traditional method of investing in the equity markets and having some 2 million to withdraw on? Let me know in the comments.

Last updated on May 28, 2012.

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13 Responses to “Early Retirement Plan Update 2012”

  1. Steve says:

    You can just use excel:
    =NPER(4%,-50000,520000)
    gives 13.7 years.

  2. Steve says:

    You (plural) currently spend about $60-70k. Your wife’s pension is slated to be $50 to $80k. You expect you’ll have at least one paid for house and subsidized medical insurance, covering two of the biggest expenses of a household. So why not just actually retire at that point? You can continue to work for the fun of it, if you want, but you won’t need the money.

  3. Lazy Man says:

    We might retire at that point. It’s far enough in the future that don’t have to make the decision on it or now. We also have a new child coming with more expenses to come with it.

  4. Michelle says:

    This is a great thorough plan. We want to retire early as well. Retiring to us means traveling though.

  5. MJS says:

    I guess I am with you on retirement definitions. I know someone who owns a business, works when he isn’t vacationing and takes off 12-16 weeks a year. If you ask them, that’s more than they need and they like what they do. Not retired, but probably enjoying life more than most retirees.

    I also think there are two flaws in your article. The first is the general question at the end. The last ten years of the market has shown there is no traditional number any more. That’s they hype created by Fidelity, Ing, Schwab, etc. Show me someone with 2M and no plans to touch principle and I will show you someone who will still run out of money, or at least live much more poorly than if they did things differently.

    The second is your 4% after inflation growth number. There are ways to get that inflation proofed and after taxes, but I’d be interested in seeing how you plan on getting that in the market.

    This isn’t to say you couldn’t retire exactly when you plan to, I just think you need a better evaluation of your numbers.

    As an aside, have you looked at events which could occur and would drastically change your plan? You blogged about long term care recently, but there a host of other events that could decrease your ability to save and spend in retirement.

  6. Lazy Man says:

    Thanks MJS,

    I didn’t intend to suggest that the 2M was with no plans to touch principle. The 2M number was reverse engineering the 4% withdrawal retirement solution that has gotten some popular press (such as Yahoo Finance and Wall Street Journal). If you figure you need $80,000 to retire on (which for the vast population is pretty good), the reverse engineered number comes out to have $2 million dollars. Debating the validity of this number is the subject of much financial research… I wasn’t going to be able to do that justice in two sentences of space at the end of the article.

    As for the 4% after inflation growth, it’s ball-park estimate over 30 years. I’m aware that the last ten years may mean that the equity markets are fundamentally changed. I’ve taken this view myself at times. However, I think it is reasonable to put some expected number behind the growth of $160,000 in 30 years. I tried to express the uncertainty of this with words like “could be worth.”

    One huge factor that I had forgotten about is that the Post 9/11 GI Bill allows my wife to transfer the her education benefits to our upcoming child. I wasn’t sure that we qualified, but over the last couple of days, it appears that we do. The benefit is significant… free 4-year tuition at a state school (or $17,500 inflation-adjusted at a private school), plus a living stipend of around $15,000-25,000 a year (it’s adjusted for cost of living in the zipcode of the college/university), and $1000/yr in books. The value could be estimated at $150,000, but likely much more.

    There are always going to be events that alter the plan. We’ve got significant life insurance as part of that. If our child has special needs, that’s going to require a drastically altered plan. There’s also potential windfalls that would do the same. There’s a potential nuclear war on American soil that would drastically change my plans. As I opened with, any plan this far in the future is going to be subject to change.

  7. “One huge factor that I had forgotten about is that the Post 9/11 GI Bill allows my wife to transfer the her education benefits to our upcoming child. I wasn’t sure that we qualified, but over the last couple of days, it appears that we do. The benefit is significant… free 4-year tuition at a state school (or $17,500 inflation-adjusted at a private school), plus a living stipend of around $15,000-25,000 a year (it’s adjusted for cost of living in the zipcode of the college/university), and $1000/yr in books. The value could be estimated at $150,000, but likely much more.”

    Wow. Nice.

  8. i equate lazy to smart. you are doing great. keep us updated.

  9. […] Man @ Lazy Man and Money writes Early Retirement Plan Update: 2012 – About three and half years ago, I wrote about our plan for early retirement. I wrote it […]

  10. CollegeBoy says:

    You are an exception to the rule. Most Americans suck at planning for retirement. You are so organized in your retirement plans.

  11. […] [email protected] Man and Money writes Early Retirement Plan Update: 2012 – About three and half years ago, I wrote about our plan for early retirement. I wrote it […]

  12. Ricardo fuentes says:

    Wow that’s a lot of taxpayer dollars supporting somebody from the age of 38 and up. How can we afford it? It always amazes me how Public employees are villified for their pensions and yet they have to wait until their sixties to start drawing moneys that we don’t have.

  13. Lazy Man says:

    It is a lot of money. The government is rethinking about how they are going to afford it and changes may be coming soon.

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