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Hey folks,

I’m new to the idea of retiring early, and just recently discovered this board (along with the others on this theme). While I’ve fantasized in the past about retiring early, only in the past few weeks has it become less of a fantasy, and more of an idea…an idea which may well evolve further into an actual plan. So I’d like to describe the idea I have, provide some details of my financial circumstances, and see what you guys think.

I’m 47, single, no kids. Salary is about $98K. I’ve been working for the same company for 17 years, and expect to keep working there until I retire early. When I say “retire early,” I mean getting off the day-to-day treadmill of going into the office every day at a full-time job. I don’t actually hate my job or anything, but I’d certainly like it a lot more if I could only do less of it. So what I hope to do is make a transition about 5 years from now (when I’m 52), from full-time salaried status to part-time hourly status (or perhaps to self-employed, independent contractor status). At that point, I hope to work significantly less than half-time (say, 500-800 hours a year).

Here is where things stand financially:

My Current Assets:

Retirement Savings
401K (95% is in stock mutual funds): $154K
ESOP stock (company is employee-owned): $114K
Roth IRA (100% stocks/ETFs): $36K

Nonretirement Savings
Money market/checking: $7K
Stock mutual funds/stocks/ETFs: $79K

Home equity: $125K on home worth about $330K (condo unit in Wash, DC)
Car: 1-year-old Toyota (paid for), which I expect to keep at least 10 more years.

How will things stand 5 years from now, at age 52? Well, my crystal ball is no better than yours, but assuming realistic expectations of future contributions to savings, a conservative return from the stock market, and virtually no increase in home value, I think my assets may look something like this:

Retirement Savings (total): $450K
Nonretirement Savings (total): $130K
Home equity: $132K

Now here is what’s key to the idea: I live in Wash., DC where housing is quite expensive, and commute out to the suburbs in Maryland every day for work. I’ve recently come to realize that I could sell my condo and with the profit/equity move out to a reasonably charming/historic small town of northern/western MD and purchase a small home outright, mortgage free!!! I would not want to make such a move while working full-time, as the 1-2 hour commute (stretched out further during rush hours) would be deadly. But I’m thinking that if I worked part-time, did some of my work at home, and drove in to the office only on as as-needed basis….well, that could be a hell of a nice life.

Of course there are other key considerations, that I’ve given some thought to. I’d have to remain very disciplined with my spending, which I’m not worried about. I’ve been living below my means for years, with an annual trip to Europe being my only real splurge (one that I don’t plan to give up). I’ll have to remain disciplined with my investments…I’m happy to say I did not panic and get out of stock market during the turmoil of the past year, so I’ve enjoyed the recent huge run-up, as I hope you have. I think I have finally overcome by stupid habit of investing in risky biotech stocks and other trendy things, now taking satisfaction from boring and relatively conservative funds, most of which have treated me nicely enough over the years. I’m healthy and have no need for regular medical care, but I realize that once I take the plunge into early retirement I’ll need to protect myself from financial ruin should my health change for the worse. I’ve learned a bit about high-deductible health plans – it seems one can them for as little as $150/month.

The final big key concerns just how much work I would get from my employer once I make this transition. Obviously, that’s something you guys can’t help me with. But I expect that five years from now I could make maybe $40-50 per hour (after taxes), and I so I’d only need to work about 500 hours a year. Actually, I’d need much less than this to cover expenses (lacking a mortgage), but I would want to be able keep socking some money away for long-term retirement (not to mention those trips to Europe).

So, what do you think? Does this sound at all realistic? Or should I plan on slaving away for a few more years and get a bigger financial cushion underneath me before retiring early? Or given my current financial situation, should I just plan on working full-time well into my 60’s (the horror…)?
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<<The final big key concerns just how much work I would get from my employer once I make this transition. Obviously, that’s something you guys can’t help me with. But I expect that five years from now I could make maybe $40-50 per hour (after taxes), and I so I’d only need to work about 500 hours a year. Actually, I’d need much less than this to cover expenses (lacking a mortgage), but I would want to be able keep socking some money away for long-term retirement (not to mention those trips to Europe).
>>


Heh, heh! So what are the possibilities for retiring in place, collecting a full time pay check and showing up in the office on the day you collect it ---- prefereably avoiding that with paycheck direct deposit?


Ideally it would be about five years before someone said, "Hey, whatever happened to 'ol KDC, anyway?"



Seattle Pioneer
Dreaming
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Seattle - I realize the employment scenario I described would not be possible in most jobs, but luckily it should be possible in mine. My work is entirely project-based, with projects lasting anywhere from a couple of months to a couple of years. Although I do a wide variety of things in my job, I'm thinking that for this transition I would specialize in the things that I enjoy most and know that I'm good at. There's a continual need for these things, but it's not a daily (or even weekly) demand.

But if you have a strategy for collecting a full-time paycheck during retirement, I'll all ears. :-)
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<<But if you have a strategy for collecting a full-time paycheck during retirement, I'll all ears. :-)>>


Heh, heh! It's the Holy Grail of Early Retirement! Many go Grailing but finding the Grail is elusive.


Our Founder, intercst, had his "3 for 1" strategy where he would find a way to take three hours off for every hour of unpaid and involuntary overtime he had to work.


<<Seattle - I realize the employment scenario I described would not be possible in most jobs, but luckily it should be possible in mine. My work is entirely project-based, with projects lasting anywhere from a couple of months to a couple of years. Although I do a wide variety of things in my job, I'm thinking that for this transition I would specialize in the things that I enjoy most and know that I'm good at. There's a continual need for these things, but it's not a daily (or even weekly) demand.
>>


That sounds like a useful degree of flexibility.


Once I was a repairman who worked for a utility and ran my own furnace repair service on the side. Then I quit the utility job. A few years later I reduced my work effort further, restricting the distance I'd travel the hours I'd work in the day and the days of the week I'd work. Two year ago I retired altogether. That was a pretty good phased retirement.



Seattle Pioneer
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I realize the employment scenario I described would not be possible in most jobs, but luckily it should be possible in mine.

What is it you do?
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There is a more active retirement investing board, you might want to repost this there to get more responses. Here is a link to an unrelated post on that board.

http://boards.fool.com/Messages.asp?bid=100154&mid=28017...

...I’d have to remain very disciplined with my spending, which I’m not worried about. I’ve been living below my means for years,...

I didn’t crunch the numbers but it only looks like your net worth is only about three years of your salary. Even with inflation and raises that doesn’t come out to a real high annual saving rate when you have probably been working for 25 years.

To really qualify as “living below your means” you also have to consider your basic retirement savings as a required necessity so putting five to ten percent of your money in a retirement fund each year only gets you to the break even point. For example if you make $100K, spend $90K and save $10K, then you are really living right at you means, not below your means. To live 5% below your means you would need to really save $15K,

There are people who live comfortably on half your salary or less, you might try living on half of it to save a lot more money and to see if retiring early is worth the reduction in lifestyle that you will need to do. If you can have your pay automatically deposited into multiple accounts then you could split it between these three accounts;

1) Just enough to cover the condo costs that will go away when you retire.
2) $20K to live on like you planning on earning (500 hours * $40=$20,000). This would be the only money you touch, including your trip.
3) The rest: Pure savings.

If you are serious about doing this then does it make sense to keep the condo for five more years if you can rent someplace for less? You are able to sell it sooner and rent a cheaper place you would be able to save more money. Even though prices have dropped in most areas of the country, mortgage interest rates are still phenomenally low. If they go back up to 8% or higher when you are ready to sell the condo in five years then the housing market could be even worse.

If the numbers work, then the biggest problem that I see is that you are depending on continuing to work at that company. Once you become part time you will quickly become replaceable and if there is a management change they may not want to continue letting you work that way. You also need to take look to see how employable you would be if you have to find work with another company after working part time for a few years.

...an annual trip to Europe being my only real splurge...

I don’t know what your job is but once your “retire” you might be able to work in Europe or elsewhere around the world, even if it doesn’t pay that much it could be fun. You might crunch the numbers to see if could “retire” at 52 then work overseas for 10 years earning enough to at least cover your expenses so that your retirement savings would have ten more years to grow before you have to tap them. If you current company has overseas operations then you might be able to transfer to a job with that company.

I have looked into what it would take to teach English as a foreign language overseas and it seems to be very doable. It doesn’t pay much and lots of the open positions are not in areas that would attract a lot of tourists but as I get closer to retirement I will look into this more.

Greg
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. . . but once your “retire” you might be able to work in Europe or elsewhere around the world, . . .


++++
++++



OXYMORON Alert!

Quick review: retire = to withdraw from office, business, work, or active life, usually because of age.


2nd Point, Financially Independent denotes the ability to live [& enjoy life] without working.


sunray
a man who now returns this board to {its normally} accurate posting

;-)
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Financially Independent denotes the ability to live [& enjoy life] without working.

I always thought of financially independent as working IF you want to, not because you HAVE to. Under those circumstances a job can actually be enjoyable because you know you can quit at the drop of a hat. Plus, you could "work" and at some low paying "volunteer" position for a cause that you like.

JLC
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Thanks Greg, that's the kind of critical look at my situation that I need.

By your definition of "living below my means," I guess it's only been several years. This year, for example, I'll save close to 30% of my salary. But up until maybe 7-8 years ago it was closer to 10%.

It's true my savings are not what they should be. I got a late start on working, spending almost all of my 20s in school. But worse, I'm one of the many who got carried away on the tech stock boom in the late 90's (oh, those were the days). I lost an embarrassing amount of money, in both my retirement and nonretirement accounts.

Thanks again.
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...It's true my savings are not what they should be....

Actually you are doing great for your age and being single with no kids. Probably within the top few percent of people in your situation.

The problem is that retiring early, even if you work part time, makes it much more difficult financially because;

1) You have increased health are costs without an employers insurance policy. Even if you can find affordable insurance now, it might be very expensive by the time you are 60.
2) You will have a lower social security, pension payment, and employer 401k contributions.
3) You will likely invest more conservatively once you retire and will likely get a lower return which will give you less growth.
4) You will have more years to fund retirement if your part time work doesn’t cover your costs.
5) Likewise, the additional years in retirement make it more likely that you will happen to be living on your retirement saving during a bad bear market.
6) When you are retired some of your expenses for things like travel, classes, hobbies, etc may increase more than you expect.

There will always be some financial risk in retiring early but people often overlook the possibility that if they don’t retire early then they may not actually live to retire. Unfortunately I know several people who have died recently that were just a few years short of retiring. For couples this risk is mitigated by the higher probability that at least one of them will live to a ripe old age and need the retirement money but for a single person there can be a greater chance of dying relatively young than outliving their money.

This link is overly simplistic but it will give you an idea of what the chances are that you won’t live to be a certain age.

https://personal.vanguard.com/us/planningeducation/retiremen...

From what you have said cutting back to part time work in your early 50’s sounds plausible to me if you plan well and are aggress in saving and living a frugal but fulfilling lifestyle.

Greg
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How will things stand 5 years from now, at age 52? ...I think my assets may look something like this:

Retirement Savings (total): $450K
Nonretirement Savings (total): $130K
Home equity: $132K


My husband and I semi-retired at 52 with similar savings apiece--and immediately went through the 2002 recession! And now this recession. But we're doing fine.

Just as you're planning, we moved to a lower cost of living area and bought a house for cash. I worked part-time for 3 years (at the same pay range you're talking about), then retired completely at 55. Hubby changed jobs (director of software engineering-->college instructor) with a huge pay cut but better quality of life. I can't persuade him to retire yet, maybe because we take a 2-3 month RV trip every summer, and a foreign trip most years as well. Since semi-retirement, we've been to Europe 3 times as well as Canada, Africa and India. Semi-retired life is good!
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