Lazy Man and Money

Our Early Retirement Plan: Motivation, Numbers & Tools, and Conclusion (Part 5)

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If you are just starting this, I suggest you start at The Introduction – Part 0. Alternatively, you can jump to Our Early Retirement Plan: Where We Are Now (Part 1), Our Early Retirement Plan: My Personal Income (Part 2), Our Early Retirement Plan: My Wife’s Plan (Part 3), or Our Early Retirement Plan: Obstacles and Expenses (Part 4).

In the end, for us to succeed, we are going to have to continue to be motivated towards our goals, continue to learn about better ways to reach them, and act on the things that matter.

Part of the learning and motivation come from reading articles like the Money Magazine one that I highlighted in the beginning. Still others may come for friends and peers like My Dollar Plan’s escape from the rat race.

In part 2, I mentioned that retirement planners suggest that you can withdrawl 4% of your retirement nest egg each year and still maintain the principle. When I looked at our finances, we aren’t close to having the funds to live off of that. However, when you add my alternative income from “retirement lifesytle jobs”, an inflation-adjusted pension, two modest retirement nest eggs (and time to grow them), two investment properties, it may turn out to be a decent income. If we continue to practice our frugal lifestyle and catch a few breaks (me doing the child care while working – if possible, and getting cheap health care from the military), I think the plan is entirely possible. It’s easy for me to sit here and speculate, but what about a real world test? Glad you asked.

One of the most useful pieces of software is Bill Sholar’s FIRE Calc. I ran some rough numbers through there to see how we’d do. Looking at the publically available military charts it like my wife should have a military pension of around $50,000 in today’s dollars indexed for inflation. At the same time, my websites and businesses should be at least at $48,000 in annual income in 11 years. This is an extremely conservative estimate as I should make $40,000 this year – and I see a lot more growth on the horizon. Next we looked at what our expenses might be. Our rent, our biggest cost, is $24,000 this year. I suspect that we could easily get by on $50,000 given our frugal lifestyle. Just to build plenty of wiggle room, allow for some great vacations, or save some money for the potential children, I estimated that we’d need $80,000 a year. These numbers disregard any potential income from social security, our investment properties, or savings my wife might make until she retires. The calculator says that we could live until age 100 with around 11 million dollars. That might sound like a lot, but it is closer to $1.5 million in today’s dollars – still not chump change.

My hunch says early retirement is possible. The FireCalc tool seems to say it’s possible. It’s going to be something that I’ll have to look at every year, but at this point it looks like we are on track.

Our Early Retirement Plan: Obstacles and Expenses (Part 4)

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If you are just starting this, I suggest you start at The Introduction – Part 0. Alternatively, you can jump to Our Early Retirement Plan: Where We Are Now (Part 1), Our Early Retirement Plan: My Personal Income (Part 2), or Our Early Retirement Plan: My Wife’s Plan (Part 3).

In part 2, I explained how I can live a retired lifestyle even while I’m technically bringing in an income. In part 3, I detailed how my wife could retire early. Today, I’d like to go through some obstacles we have in attempting to retire early.

  • Children and Rising Expenses – Right now we are DINKs (double income no kids). We hope to have children some day. Children aren’t cheap, and there’s a whole slew of costs with them that I haven’t even begun to explore. I know that day care is expensive. I hope to be a stay-at-home dad at least part of the time. That would reduce some expenses from the outset. Additionally, there are some options available to the military for day care.
  • Education – With the aforementioned children, there’s going to be an education expense. This is one area where I don’t necessarily believe in frugality. I want to have enough money saved so that if our children can get into a great school, money won’t be a problem. My wife is of the opinion that the child should earn their way through college so they don’t become Lazy like dad. I think we can find a middle ground with this. Again, this is speculation since there are no kids at this point.
  • Health Care – This is one of the biggest reasons why people can’t retire early. Fortunately, the military has a great plan that we’ll be eligible for called TriCare. We haven’t looked at the costs of this in detail, but I think it’ll be a cost-effective solution for us.
  • Expensive Housing – Whether we choose to stay around San Francisco or move back to Boston, housing is not going to be cheap. This is going to be one of our biggest expenses. Though we could look to live in an area of lower cost of living, I’m partial to the two areas I mentioned because I know I can surround with smart people there. Besides the opportunities that brings, it would be good for potential children to also be surrounded by the same smart people.
  • Other Uncertainties – I’m sure there are going to be other obstacles. Life pops up with surprises when you least expect it (of course they wouldn’t be surprises if you expected them).

These are some things that are hard to account for at this stage. Thus any plan that we make has to add quite a bit of padding

Our Early Retirement Plan: My Wife’s Plan (Part 3)

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If you are just starting this, I suggest you start at The Introduction – Part 0. Alternatively, you can jump to Our Early Retirement Plan: Where We Are Now (Part 1) or Our Early Retirement Plan: My Personal Income (Part 2).

Before I start, I should come clean. I’m going to be putting some words in my wife’s mouth. We’ve talked about things a bit and this post is a result of those conversations.

I’ve mentioned in the past that my wife is a pharmacist in the military. As such she gets a few different types of pay. She gets her base pay, a cost of living adjustment (COLA), a housing stipend, amongst others.

Tax Benefits

  • The housing stipend is paid to her tax-free. – This stipend is a pretty huge sum of money because it’s adjusted for home prices in the area of office. Since my wife works in San Francisco, one of the most expensive places to live in the US, she gets a lot of money. This money about 50% more than our actual rent. We pocket the rest – one of the benefits of living frugally.
  • We live in two states – We traveled west to settle in San Francisco, California we went through Reno, Nevada. We fell in love with it. The weather is great. It’s close to skiing, which my wife loves. It’s close to casinos, which I love (I just keep my bets reasonable). You’re wondering where I’m going with this? The military has thing called a Home of Record which can be different than your Legal Residence. It allows for the possibility of living in one state and voting or paying the income tax of another state. It’s a weird law, but we follow the rules. Plus, if the military didn’t move us around, we probably would have lived in Reno anyway. For more information see this About.com article.

Military Pension

Despite what you hear about pensions disappearing, the military pension is still strong. It’s backed by the US Government. I have difficulty imagining a scenario where congress passes something that would prevent the hard-working people of the military earning their pension. My wife is eligible for this pension after 20 years of service… around age 44.

The Military Pension is a fascinating personal finance topic. At that 20 year mark, you have the opportunity to retire, take 50% of your highest base pay (no more housing stipend or other pay). If you don’t want to retire and stay on another 10 years you would then get 75% of your highest base pay. It’s a tough choice, because you stay on your base pay is likely to grow and you get to keep more of it. Of course, you could always retire from the military, take the pension, and work elsewhere – collecting two paychecks. As a pharmacist, my wife should have numerous jobs available to her. This can be a tough decision and one that Plugged in Finance tackled recently. If anyone else wants to crunch numbers on this one, I’d be appreciative.

I should also mention that military pensions are indexed for inflation, so we will truly get the same amount of buying power each year. I’m not sure if other pensions set up that way.

Side Jobs

My wife has expressed interest in having a side job in retirement. She often jokes about having the job with the least about of thought necessary. I can’t come up with an example right now, but she did have an idea for a real job that she would like… chauffer for people visiting Napa Valley wineries. I personally wouldn’t want to be dealing with a bunch of drunk people, but I know I could make a killer blog out of Napa Valley Limo Confessions. It would make HBO’s taxicab confessions look like child’s play. I could also spin that off into a real winery review blog. In any event, the point here is that she is likely to wind down to working less, but not stop working completely. Even if she leverages here pharmacy license, she could make quite a bit of money in just one day a week. Thus some addition income can be expected from here.

Investment Income

Like myself, she’s been maxing out here retirement accounts – both 401K and Roth IRAs. We see no need to change that. It will be $19,000 a year for the next 11 years until she reaches that first retirement decision. That should be a nice nest egg by the time we are eligible to take the income.

Rental Property

I mentioned yesterday that I have a rental property. My wife has one as well. She had bought her’s before we had met. Like me, she barely makes back her expenses on it at this point. However, in 30 years it will be paid off and any income that it earns after that be a nice supplemental income.

Our Early Retirement Plan: Introduction (Part 0)

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I thought I’d switch things up this week and write about our retirement plan for the future. It’s going to be detailed, so I’ll have an article one day each week.

I need to get a few things out of the way:

  • Retirement planning at age 32 is a shot in the dark – Unless you really have tons of money it’s hard to plot a course for where you might be in 10 years. You think you have a plan and something could speed up the target date or slow it down right in a hurry. Still it doesn’t hurt to get things out there and make adjustments as life does what it does…
  • Luck will be a factor – I know it’s impossible to plan for luck. However, as you read where we are now, you may be jealous about previous luck that we’ve had. I don’t argue that we’ve been lucky to put us in the position we are. However, a lot of planning went into it as well. One of my readers has his e-mail quote as, “Luck is the residue of design” (Branch Rickey) and I believe that to be true here.
  • Annoying vs. Motivating – A friend of mine has a chart of his earnings. Last week over a span of 4 days or so, he sent me 8 versions of the chart. (It was an impressive chart). At one point, he asked, “Am I annoying you or motivating you?” It was such an insightful question as he was almost on the line of annoying. I’m pretty optimistic about our chances to retire early. I hope you take this week’s posts as motivating, not annoying.
  • “But I can’t do what you are doing” – It’s usually the first thing I hear with these kinds of posts. It’s true, where you are in your life is not going to be where we are. You may be ahead of us, you may be behind us. You will have different opportunities. Some of them will be better than ours. Some may not be as good. Everyone is going to be different. Instead of focusing on the very specifics of our plan, look at the generalities behind it. If you see that we are saving on taxes, ask yourself what might be within your ability to do the same.

Lastly, part of this series is inspired by this 9 month old Money Magazine article. We had talked about this plan way before the article came out, but the family and the plan may be similar to ours. Inspiration for getting this finally out this week was brought by fellow Money Writer, Madison DuPaix, who was interviewed by Yahoo Finance last week.

Start at The Introduction – Part 0. Alternatively, you can jump to Our Early Retirement Plan: Where We Are Now (Part 1), Our Early Retirement Plan: My Personal Income (Part 2), Our Early Retirement Plan: My Wife’s Plan (Part 3), Our Early Retirement Plan: Obstacles and Expenses (Part 4), or Our Early Retirement Plan: Motivation, Numbers & Tools, and Conclusion (Part 5).

Weekend Links: Harry’s Hofbrau Edition

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A couple of weeks ago, a friend turned me onto Harry’s Hofbrau a local chain of restaurants. It turns out that in San Francisco “Hofbrau” means more of a carvery. It might somewhat similar to a more upscale version of Boston Market. It’s a little like a cafeteria where you just go down the line and construct your meal from all the options in front of you. The food is amazing, but the prices are even more outstanding. Last night, I had sirloin tips in a mushroom sauce on bed of noodles with a roll for $7.14. Energi Gal had a soup, half sandwich, and fruit salad for around $7.00. With taxes we had a great meal for a little over $16. It’s not as cheap as eating at home, but it’s a great value.

Onto the links: