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Name User 09-05-2018 06:48 PM

How to Retire in Your 30s With $1 Million in
 
Good interesting read, this isn't a very active forum but wonder how any pilots subscribe to this mentality. Maybe not necessarily the RE part but the FI part.

https://www.nytimes.com/2018/09/01/s...ire-early.html

swaayze 09-07-2018 09:16 AM

I find this topic quite entertaining and motivating. Came across MMM a couple of years ago and love his attitude. Listen to a couple of podcasts and read random blogs as twitter feeds them to me.

Our situation is such that my ďREĒ will happen at 65, since Iím already 51 with twins about to start college and a non-working spouse with health issues so we need the good insurance if nothing else. And, I still like my job.

Spent most of my 26 year career so far at the regionals, with very little time even collecting left seat pay; so Iím not anywhere near where I thought Iíd be net-worth-wise at this point, but I did start early and save to the company match, and it has served me well. With my ability now to (relatively easily) max the 401k, and stretching to also max Roth IRAs, we should be in good shape. Though Iíve been pretty money smart, I wish Iíd had the mindset that 50% savings is a legitimate target before recently.

That doesnít change the mindset now though. BUT... Iím far from what I would call frugal, though I generally donít spend much on stuff (took many years for me to splurge on a 1080TV, and that was many years ago with no upgrade planned; newest car is a 2007 and I do the vast majority of reasonable auto and home maintenance; usually shop for clothes at Target, WM, even GW; etc.) but we do blow our money eating out since neither of us likes to cook. Though it is hard to resist finally spending for what Iíve long dreamed: a house on an acre with a huge shop now that I can now arguably afford.....

The gotcha here is that the young folks that think $1M is a lot of money are likely to find that they donít have enough somewhere down the line. Trying to fund a 40+ year retirement on that will prove quite difficult, because even at 4% returns (I suspect this is a reasonable long term return moving forward, if invested somewhat conservatively as it should be to live off of, imo) the principal will only be worth todayís $250k in about 50 years. The movement is hot now due to a long, prosperous market, but that too shall ebb and flow and unless that $1M can throw off 4% AND grow by that much each year on average, then money will get tight. Stuff happens and expenses rise significantly; moreso if you have kids as they get older. Healthcare costs often increase, no matter how healthy your lifestyle. And so on.

Still a very worthy knowledge base to have and existence to aspire to imo. Time is finite (and means everything) and money is but a (renewable) tool to make living easy. This much Iíve learned.

rickair7777 09-07-2018 10:10 AM

$1M can't be anywhere near enough to retire early. Maybe enough if you're old enough for SS and medicare. Unless your idea of retiring is contemplating your navel in a tiny house or rural area.

Also... money in the bank has no real value, especially as time passes. If too many people rack up a big nest egg and retire, there will be nobody left to do the work. Inflation and wages will rise, your lawn guy would then charge $100K to mow your lawn, and your employed neighbor who's now making $2M/month could afford it.

Our current system depends on X number of workers supporting Y number of retirees. Change that equation much and something has to give.

Absent some fundamental shift in workforce automation, the economic system will adapt and evolve as needed so that the people doing the work get compensated in real terms.

IMO a more realistic plan would be to work hard to build enough wealth to retire comfortably later in life, while developing a skillset suitable for part-time, consulting/gig economy work. Once you've set yourself up to retire well, then you can work as much or as little as needed to meet your current financial desires and QOL. This is flexible over time, and keeps you from running out of money after 20 years out of your profession and the workforce.

Definitely worth sacrificing to accumulate diverse wealth while young, then you have options (emphasis on DIVERSE).

Name User 09-07-2018 03:12 PM

Quote:

Originally Posted by swaayze (Post 2670097)
I find this topic quite entertaining and motivating. Came across MMM a couple of years ago and love his attitude. Listen to a couple of podcasts and read random blogs as twitter feeds them to me.

Our situation is such that my “RE” will happen at 65, since I’m already 51 with twins about to start college and a non-working spouse with health issues so we need the good insurance if nothing else. And, I still like my job.

Spent most of my 26 year career so far at the regionals, with very little time even collecting left seat pay; so I’m not anywhere near where I thought I’d be net-worth-wise at this point, but I did start early and save to the company match, and it has served me well. With my ability now to (relatively easily) max the 401k, and stretching to also max Roth IRAs, we should be in good shape. Though I’ve been pretty money smart, I wish I’d had the mindset that 50% savings is a legitimate target before recently.

That doesn’t change the mindset now though. BUT... I’m far from what I would call frugal, though I generally don’t spend much on stuff (took many years for me to splurge on a 1080TV, and that was many years ago with no upgrade planned; newest car is a 2007 and I do the vast majority of reasonable auto and home maintenance; usually shop for clothes at Target, WM, even GW; etc.) but we do blow our money eating out since neither of us likes to cook. Though it is hard to resist finally spending for what I’ve long dreamed: a house on an acre with a huge shop now that I can now arguably afford.....

The gotcha here is that the young folks that think $1M is a lot of money are likely to find that they don’t have enough somewhere down the line. Trying to fund a 40+ year retirement on that will prove quite difficult, because even at 4% returns (I suspect this is a reasonable long term return moving forward, if invested somewhat conservatively as it should be to live off of, imo) the principal will only be worth today’s $250k in about 50 years. The movement is hot now due to a long, prosperous market, but that too shall ebb and flow and unless that $1M can throw off 4% AND grow by that much each year on average, then money will get tight. Stuff happens and expenses rise significantly; moreso if you have kids as they get older. Healthcare costs often increase, no matter how healthy your lifestyle. And so on.

Still a very worthy knowledge base to have and existence to aspire to imo. Time is finite (and means everything) and money is but a (renewable) tool to make living easy. This much I’ve learned.

Hi and thanks for your comments. First keep in mind the 4% SWR is indexed to inflation. In other words year two you withdraw 4% plus a 3% bump for inflation. FireCalc says you should be fine with a standard asset allocation. This is becuse historical returns are roughly 6% after inflation.

What most people don't realize, or fail to, is that things don't buy happiness, but instead buy burden. Your acre lot with shop for example, while it sounds nice especially as you get older it becomes a burden as that yard must be mowed, landscaped, watered, etc and many "things" pile up in that workshop. The costs in both time and money are quite high.

I'm not advocating for living in a box but you see this around Dallas quite a bit - 3000 to 4000 sq ft homes etc. These homes are filled with things no one ever uses or rooms rarely ever visited.

Hedonic adaptation causes humans to quickly become accustomed to increased standards of living. Your new car is nice and makes you happy for a few months, but then you want something newer and better.

A high savings rate is a very different way of living but it could serve pilots well. When you get furloughed you could use the lowered income to convert your traditional 401k dollars to Roth for example. Also I think pilots have a unique ability to keep expenses low especially the younger ones. We don't need expensive suits, or a nice car, etc. since we are provided a uniform and we only put a few thousand miles a year on our cars, they will last several decades.

Name User 09-07-2018 03:19 PM

Quote:

Originally Posted by rickair7777 (Post 2670136)
$1M can't be anywhere near enough to retire early. Maybe enough if you're old enough for SS and medicare. Unless your idea of retiring is contemplating your navel in a tiny house or rural area.

Also... money in the bank has no real value, especially as time passes. If too many people rack up a big nest egg and retire, there will be nobody left to do the work. Inflation and wages will rise, your lawn guy would then charge $100K to mow your lawn, and your employed neighbor who's now making $2M/month could afford it.

Our current system depends on X number of workers supporting Y number of retirees. Change that equation much and something has to give.

Absent some fundamental shift in workforce automation, the economic system will adapt and evolve as needed so that the people doing the work get compensated in real terms.

IMO a more realistic plan would be to work hard to build enough wealth to retire comfortably later in life, while developing a skillset suitable for part-time, consulting/gig economy work. Once you've set yourself up to retire well, then you can work as much or as little as needed to meet your current financial desires and QOL. This is flexible over time, and keeps you from running out of money after 20 years out of your profession and the workforce.

Definitely worth sacrificing to accumulate diverse wealth while young, then you have options (emphasis on DIVERSE).

First keep in mind the $40k for starters will be indexed to inflation and increased at 3% per year. My annual spending with mortgage is right at $40k and without would be around $28k.

For health insurance most qualify for large ACA subsidies since their earned income is so low, only a couple hundred a month at best.

I had to kinda laugh at your assertion that most will build up a large nest egg and quit working. I highly doubt most Americans will change their spending habits. Saving 60%+ of your income is something most are not conditioned to strive for. Instead, most will spend right up what their income allows.

swaayze 09-10-2018 08:31 AM

Increased income yearly is exactly the issue/problem. You cannot index yearly to inflation unless you have returns measurably over and above inflation. While that has been very easy for the last ten years that won’t always be the case. Soon (?) that will flip flop for a time and portfolios will decrease, but your minimum expenses will continue to increase, eating into your principal (unless you’re working some); the boat will take on water faster than you can bail without a bigger bucket (other income). That’s why the best of the promoters are quick to disclose that it’s more about FI than RE.

Yet this is what I worry that many of the younger FIRE folks really don’t get, because they haven’t lived a couple of market cycles as investors (or even employees). For instance, I can assure you that spending more by converting to a ROTH during my two furloughs was the last thing on my mind, tax savings be damned. Even Mr. Money Mustache, with whom I’m sure you’re familiar, is wishfully thinking on their expenses as they age. I have probably never been healthier, but passing 50 I also have more medical expense than ever, some almost directly attributed to an active lifestyle. My kids are about to go to college and I refuse to have them graduate with lots of debt, so if they stay good then I help out significantly. Not to mention the costs of their four years in HS marching band, a couple of ten year old cars to buy, maintain and insure, etc.

There are so many FI blogs and podcasts by young folks that are a bit idealistic compared to the buckle down mentality of a Dave Ramsey, and I’m afraid time will hurt some folks who think they’re prepared but really are not.

No doubt tough, there is great value in subscribing to many of these tenets (of both generations', the MMM and the DR). Although I don’t really expect, or even truly want, yet, to RE, I DO wish quite frequently that I already had FU money in the bank.


BTW: when I say “you” I’m being generic, not pretending to know how you specifically will fare. Sounds like your expenses are well controlled.

swaayze 09-10-2018 08:56 AM

Oh yeah, and my acre and shop:

You ainít kidding!

Extreme increase in outflow. Purchase price, taxes, insurance, hvac (if house is bigger, which is likely), septic and well maintenance, a few grand for a zero turn large path mower (or another few hundred each month for pro service). Thatís not to mention that Iíd like a pool and spa, so thereís another few hundred a month down the crapper. All to have a place to build and restore cars (more outflow), and to take an occasional dip in the pool or tub, but mostly just to feel like Iím at my own little resort? I guess thatís why Iím still in my Eagle FO cookie-cutter house, which is quite nice, though not by todayís standards of hardwoods and granite (tbh though itís more of an Eagle Captain's house that I stretched and was able to buy during the easy money days of 2005). We donít really care to travel a ton or have other big entertainment expenses, so I keep trying unsuccessfully to justify it to myself as entertainment/travel expenses saved for setting up a homebody-bring-the-grandkids fun estate.

That is the real issue for me: how much to spend on fun/wants/dreams in the present vs singular focus on amassing cash to merely exist in the future? (Especially as I start to sense time expiring more quickly) No matter how focused we are on ďnot stuffĒ I find that to be a difficult question. I suppose the answer would be clear only if we knew how long we would be here.

tomgoodman 09-10-2018 09:09 AM

Itís a sneakers/charging bear situation. The $1M doesnít have to last a lifetime; it only has to outlast everyone elseís retirement fund. :D

swaayze 09-10-2018 09:20 AM

And finally a nosy question (feel free to tell me to bug off, though it is genuine and I feel that I can learn from you; but still has a point if rhetorical):

You mention lowered expenses by $1000/mo if/when you pay off your mortgage, but expenses of only ~ $3400/mo now. So if your P&I is $1000/mo I assume you are probably spending almost that much each month on property tax and insurance (assume you’re in DFW from your earlier references, so maybe $600-700 at the least). How the heck do you spend only ~ $1800/mo on everything else? We spend that on utilities, auto gas, and other insurances alone (disability, life and auto - we're well covered, but all are necessary imo). Notice we haven’t eaten yet!

This is what I mean by expenses rising. I can see it if you’re a young, healthy single person, but add in a spouse and kids and ooooh boy do things change.

swaayze 09-10-2018 09:32 AM

Quote:

Originally Posted by tomgoodman (Post 2671445)
Itís a sneakers/charging bear situation. The $1M doesnít have to last a lifetime; it only has to outlast everyone elseís retirement fund. :D

Ha, I wish. Already far ahead of the average American.

Sadly itís obvious that retirement is gonna be quite the crisis in the years ahead now that DB pensions are mostly gone and the vast majority saves little to nothing.


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