A few weeks ago I received an email from Erin, a journalist who writes for AOL’s Daily Finance. Erin, who also blogs at Broke Millennial, was working on a story about the plight of Millennials who are (on average) deep in debt and are facing working for 50 years before they can retire.
Erin determined that perhaps there was some way to work less than 50 years before retiring, even if you graduate college with debt. Erin identified a number of 20- and 30-somethings that have retired (me) or are on the path to retiring at a very early age like Carl at 1500 Days to Freedom.
It’s cool to be grouped in with these other guys, since I was reading their well developed blogs when Root of Good was nothing more than a couple of posts and a home page.
Here is the final article at AOL Daily Finance: Millennials: It’s Not Too Late to Plan for an Early Retirement. In case you are too lazy to go read the article, here’s the summary. Save a bunch of your income, don’t plan on spending more than 4% of your savings during early retirement, and look for easy ways to make supplemental income after you leave the full time corporate world.
Erin conducted the interview by emailing me a series of questions. Here are her questions followed by my answers in full. I added an additional comment in italics below to further explain my initial response I sent to Erin.
1) When did you make the decision to retire early (or make it your goal)?
I formalized my decision to retire early at age 24, right after I started working at my first full time job post-college. But I always had the “don’t spend all that you make” mentality since I was a kid. A good summary of my financial journey: http://rootofgood.
2) What financial moves did you make to have enough saved to retire at 33? How much is “enough”?
I always maxed out my 401k and IRA and any other tax deferred savings plan I qualified for. Big tax savings presented here: https://rootofgood.com/
I also managed to save additional funds in a brokerage account each month. I own a modest (but decent) house that cost way less than the mortgages I could have qualified for. Same with my car – I’m still driving the Honda I bought brand new in college (13 years ago).
“Enough” is a very personal choice, but I feel comfortable with a paid off house and a little over a million bucks.
3) What was your job before you retired?
I started out my career as a transportation engineer. I never made more than $70,000 per year at my job (and started out much lower). Because of the Great Recession falling in the middle of my career, I did pretty poorly in terms of increasing my salary. I earned raises and promotions often enough, but a number of years of no raises led to inflation eating away most of my raises. I ended my career earning only 16% more (after inflation) than when I started fresh out of college. That’s proof that you can save and invest for early retirement even in a stagnant employment market – just make sure you are valuable or flexible enough to keep a job when recessions hit.
4) What do you do now to bring in money?
Transfer dividends from my brokerage accounts to my checking account! Our investments more than cover our expenses. I also make enough from my blog at rootofgood.com to cover a portion of my monthly expenses. I also get a couple thousand dollars each year from credit card sign up bonuses, participating in focus groups and research studies or other odd (but easy) ways to make money.
5) How can a millennial with debt realistically plan to retire early?
With a heavy debt burden in your 20’s, retiring at 33 may be impossible without severely sacrificing quality of life (something I refuse to do personally, and wouldn’t recommend). The key is focusing on getting your income high enough to
- pay down your debt over a reasonable time frame,
- allow a comfortable (not lavish) lifestyle, and
- save some money (and increase savings as you get raises)
6) Do you plan to help fund your children’s college educations?
Yes; we are lucky to have very affordable and good state universities nearby (in North Carolina). I’m a product of two of them! We have dedicated savings in a 529 to cover 2 years tuition for our 3 kids, and they are still 10-17 years away from college, so the 529 savings will only grow over that time period. I expect they will pay a part of college expenses through working during high school and college (mostly summers and breaks), babysitting money, tutoring, or whatever other hustles they come up with. There are also tons of opportunities to earn or access money during their university years – work study, grants, student loans, scholarships, being research assistants or resident advisers. We’ll fund the rest from our investment portfolio. The quick and dirty answer is “college will be funded from a wide variety of sources”. We aren’t averse to our children taking on student loans. After all, college should greatly increase their earnings potential, so taking on a little debt to fund it is an investment.
7) How much money do you have to live off of year-to-year?
Our retirement budget is $32,000 per year and includes plenty of fun, discretionary spending (travel!) and long term spending like replacing our car. Details here: https://rootofgood.com/
I wanted to add that we still owe a smallish amount on the mortgage and will pay it off over the next three years. We have savings designated for mortgage repayment on top of what we need to support $32,000/yr spending from our investments. The mortgage is at 1.99% so we aren’t in a hurry to repay it faster than the regular monthly payments.
8) What are the top things you sacrificed in order to retire early?
I don’t really feel like I sacrificed a lot. We have traveled the world, started raising three kids, and have a decent house and reliable cars. We have computers, high speed internet, smart phones, HDTV’s, gourmet foods, etc. Life is pretty amazing.
Objectively speaking, others would say we are missing out on:
- getting sloshed at bars and nightclubs (no thanks)
- attending the Ballet or Symphony (interesting to watch for a few minutes on youtube, otherwise yaaawn)
- fancy restaurants (we cook pretty well at home and it’s more comfortable anyway)
- and living in a mansion and driving luxury cars (our 4 bedroom lakefront house in the city is pretty awesome to us, and I tend to walk to most places instead of drive anyway)
9) Is there a typical reaction you get when you tell people you’re retired?
It rarely comes up honestly. I don’t make a big deal out of it in real life. I’m more than happy to discuss finances and how to get on the path to financial independence but most people don’t seem that interested (wonder why?!).
All my friends and family that know about my early retirement seem to be genuinely supportive and happy.
10. Anything else you’d like to add?
General advice:
-Things may look pretty bleak to millennials today. But remember that our parents and grandparents have lived through very difficult economic environments over the last half century (and many thrived in spite of difficult times). Steep inflation and crappy economy in the 1970’s, recessions in the early 1980’s, a 23% stock market crash in one day in 1987, soft economy and bad job environment in the early 1990’s. These difficult times all presented challenges to the respective generations coming of age in the thick of it. And the generation coming of age in the 2000’s has received an excellent crash course in financial disasters through the dot com/September 11 crash and the Great Recession. Unfortunately, these won’t be the last periods of economic turbulence during our lifetimes. Work hard on enjoying life today, but don’t get caught off-guard the next time a recession strikes. The fact that recessions hit is certain; the timing, duration or extent of the next one isn’t certain. But times are always better after a recession!
-Consider moving to a lower cost area if you are just starting out in life. Elsewhere, housing prices can be a quarter or a tenth of what they are in places like SF or NYC. Salaries are often not that much lower. NYC and SF don’t hold a monopoly on entertainment, dining, and culture. Take a look at Austin, Nashville, Raleigh, or Atlanta, for example.
And there you have it! My interview response in full.
Thanks again to Erin at AOL Daily Finance and Broke Millennial for the positive article and giving me the opportunity to share my own tales. And thanks for informing today’s Millennials that there is an alternative path to excessive debt fueled consumption and working till you are 73!
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I think it’s fantastic you got to $1 million bucks in 9 years on a maximum income of $70,000 a year! 9 years x $70k gross = $630,000 pre tax if you saved all your income, hence can you share with us some of your investment hits and any other strategies you got?
The past 13 years have been rough in the market so this is especially impressive.
Was there a particular trigger as to why you retired at 33?
Cheers,
Sam
The $1 million+ represents our joint investments (mine + Mrs. RootofGood’s). She also earned a salary for most of that time, and it was not far off from what my salary was. We still saved a high percentage (over 50%) of our salaries.
No investment tips, other than I took a fair amount of risk with a lot of equities. I stayed 100% in the market during the 2008-2009 downturn, even switching to a more aggressive (long term) portfolio during that time.
Here’s my asset allocation and how I manage my investments. All passive, low cost investments: https://rootofgood.com/investment-management-using-asset-allocation/
I never figured out any secrets to making a killing in the market other than keep costs to a bare minimum.
Nice. Definitely helps to have a spouse hold the same financial values. Even $500-600,000 a person is a very nice sum by 33.
I’d love to understand more about the psychology behind your decision to quit. What was the trigger point? Mine was realizing I could negotiate a severance and my blog finally generating some livable income.
It’s going to be fun to follow your journey!
I was more “let go” than quit. I had planned on another year or two of working just to pad the portfolio a bit. Life happens. I didn’t really decide I was retired until the day after I was let go. I took a look at all the numbers and decided I would be okay without full time paid employment for the indefinite future.
If the right job came along with the right terms, right salary, right corporate culture, and right coworkers, I might jump on it. So far no one has offered my six figures to hang out, play games, surf the net, read books, watch movies, and travel. But I’ll keep looking.
It’s good to see the positives in difficult situations. Making money hanging out would be great. But only after a while as it would get boring I think.
Because you thought about the retirement life after getting laid off, my money is on you getting back to work within two years if I was a betting man. I am a betting man, so care to bet? 🙂
Even Jacob from Early Retirement Extreme went back to work as a financial analyst at a quant shop. I fee there’s a good chance I’ll go back to work in some capacity within 5 years as well, if only for the health care.
If I were overly clever, I could bet you a few million I won’t go back to work within 2 years and make a ton of money (since I control whether I go back to work!).
We’ll see – I won’t rule out returning to work. Maybe I’ll get bored? Hasn’t happened so far! Laying in the hammock, watching the birds, reading a book. Not a bad way to spend a Sunday afternoon. Or Monday afternoon. Or Tuesday afternoon. Or… 🙂
I think Sam should owe you a chunk of money by now. 🙂
Nice interview. I’m interested in your odd ways of making money. You should write a post about that.
It sounds like living in a lower cost area really help you guys out.
Portland is pretty expensive compare to many area of the country, but it’s the cheapest big city on the west coast.
I think it would be really tough to retire at 33 if you start out with student loans.
It’s fairly inexpensive here in NC. Not sure how it compares to Portland. Housing is probably cheaper I imagine.
Is retiring a few years after a market crash the optimal strategy do you think, I.e. would you say you’ve been slightly lucky in that sense that your portfolio was nearing the number Leading up to the crash rather than past it already? I can imagine there were plenty of people who may have retired early a year before and had to go back to work?
Obviously a hypothetical question so a bit pointless but Timing of retirement (especially early) must be very important with regards to recessions and crashes. Did you see the crash coming or was your portfolio just nowhere near enough so it never crossed your mind in 2007?
I’m just starting out so the worry is obviously that I catch a marginal upside and then hit another recession, say in 6 years, just after I plan to quit the day job. Being flexible is key as you say, and to just keep saving and investing as much as possible while you are still in the accumulation phase.
I had to check my records to see where we were in 2007.
We had around $310k in investments in mid-2007 before the market started to slide for the next year and a half. We piled in another $100k during that year and a half slide, and ended up with $240k in March 2009. To put it delicately, we watched tens of thousands of dollars disappear on a routine basis. Looks like we lost around $170k total during that year and a half long market “soft spot”. Or roughly our gross salaries during that same 1.5 year period!
So yes, anyone reaching their “magic million” or whatever they needed to retire in mid-2007 would have been extremely unlucky. If it was me and I just watched my portfolio get chopped in half, I would most likely be looking for part time or full time employment to rebuild the portfolio.
I do feel like we are retiring with a strong wind at our backs, since 14 out of the last 18 quarters since March 2009 have left us with positive investment returns. Whether that means the market is poised for a crash or low growth remains to be seen (but would not come as a total surprise, if you are a student of market history).
I would actually prefer to have reached our magic million in March 2009 as the market was bottoming out. It would mean we would have much more than that today and an even higher margin of safety in our financial plans.
I’ve never been very good at predicting the whims of the stock market and view it as completely random in the short term. In the short term the market is a slot machine, in the long term the market is a weighing machine. We were fully invested all the way down and back up in the crash of 2008-2009. We kept investing hand over fist (over $100k) during the crash, so we did manage to snap up many positions that have since doubled or more.
For you, if in 6 years you look back and see almost all positive returns the past 6 years, be wary. Very wary. Bull markets don’t last forever. Today, I feel neutral to very slightly apprehensive about where the market is (sitting on 3-4 years of mostly solid growth). We may see another couple years of positive growth (or not). Within 6 years I would expect to see a recession though. But you are thinking correctly about cycles. You may get very unlucky and retire at the very peak of a market and within a year or two find yourself with 25-30% less than what you retired with (after pulling 3-4%/yr for living expenses). No shame in being smart and heading back to work in that situation.
Thanks for the very detailed reply Justin… appreciate it! And for disclosing all the figures.
“Today, I feel neutral to very slightly apprehensive about where the market is” – feeling exactly the same, but my detailed analysis for this feeling is simply just looking at the graph over the last 10 years. 🙂 I’m clearly not qualified to make any predictions so for all I know there is no reason why continued growth won’t happen for another 2,3 or 5 years.
Whatever happens the strategy remains fairly simple:
1. Pile in savings while you are employed, whatever happens in the market.
2. Retire when you are comfortable with the number
3. If markets conspire against you, go back to work.
I guess when you break it down like that, it’s not really worth worrying about too much – although you can ask me again if/when I see my portfolio dropping like you did in 2007/8!
Thanks again,
Andy
Those three steps are pretty much it.
We may very well be just a few years into an economic expansion that lasts 7, 8, or 9 years. Typically after a deep recession there is room for the economy to grow. Our unemployment rate in the US isn’t back to what it used to be (5-6%). A recession tomorrow wouldn’t surprise me, nor would 3-4 more years of solid economic growth.
Luckily the drops in 2007 and 2008 are relatively uncommon. Typically once in a lifetime (based on history). For a very early retiree, I would be more concerned with long term inflation.
Good idea posting your full interview, Justin. I was thinking I would like to hear all the responses from you, Mr. 1500, and Johnny Moneyseed.
Maybe you have posted it before, but I’m curious what you pay in property/school taxes annually where you are. One thing we struggle with is living in NY state. Property taxes are just high here and moving to a lower cost area would save us thousands a year. Currently researching this since a move would be in the equation for early retirement.
Our property taxes are around $1450 per year on a house valued around $150k (roughly 1% property tax rate). $150k assessed value is about what our house would sell for as well. I imagine that is a little less than what you pay in NY 😉
And we are in the “city” tax district. Outside the city, in the county, our house would be closer to $1000 annual property taxes. Definitely a big money saver.
Wow! $1450 a year is great from my perspective. Let’s just say we pay a lot more. Part of my plan is to downsize our home in the next couple of years, so even if we stay in NY that would save about $2000 a year. My brother-in-law recently moved to NC to escape the higher NY costs. It’s something we will be considering as well when we’re ready to downsize or at least once I’m ready for early retirement.
Enjoyed Erin’s article and glad you gave more insight into the interview here. Your early retirement journey is definitely something that has peaked my interest. I didn’t really think about it until the last few years when I stumbled on Mr. Money Mustache and some other blog/forums dedicated to it. I think one of the biggest obstacles for me would be living in a high cost of living area. Sure, it is my choice and I could move, but I’m not staying here for just the entertainment, dining and culture…most of my family/friends are here.
Well, there is a lot of sense in staying put as well. You don’t have to travel to visit your family and friends, and you can rely on your network to accomplish things that might otherwise cost you money.
We stayed in Raleigh due to family and friends, even though a move to somewhere like NYC for a period of time would have meant more money for at least one of our careers (Mrs. RootofGood works in an industry that typically pays much more in NYC).
Our local connections also keep us from being perpetual travelers or moving somewhere really inexpensive (in the US or abroad).
The main thing is to consider whether you are living in the best place for you in your own situation. Moving to a lower cost of living city won’t always be the best choice.
Let’s do a fun bet e.g. steak dinner whatever is on the menu to drink or eat!
Or we can do like a blogging shoutout in a post if you don’t go back to work in any capacity by Jan 1, 2016. That’ll be fun and easy.
I’ve been through the feelings of what you will be going through over the next two years and I’ve often thought about whether I’ve short-circuited my potential by not going to work. So I think the bet is 60/40 in my favor you will. Not a slam dunk, but if it was a slam dunk, then I would be taking advantage of you!
Ok, you are on. The winner gets bragging rights and can publicly profess to the world their victory in this duel.
As for “go back to work in any capacity”, I’d like to define that as returning to corporate employment at a similar level to my previous employment (engineering, law, or something corporate). A “real” job, in other words.
See you in Jan 2016!
And…I just saw this one too. Haha.
These tips are really refreshing to read. It seems like everyone wants to throw their hands up in the air and claim that the system is rigged or that there is no way to ever retire. But I think they’re wrong – you just need to have a plan. Clearly that’s what you guys did and now look at what you’ve accomplished.
Ten years ago when I started working, the common groupthink was that Social Security was in dire straits and pensions were uncommon and becoming more rare. I couldn’t see any other way to be financially set for life than follow a plan similar to what we did.
And the power of compound growth was amazing. The idea that owning something that could produce more income than one’s job also made me realize working for a living was the hard way, and accumulating assets that could produce income for you was the easy way. Being naturally lazy, I chose the easy way (which required working hard for a while).
Great interview!
Very inspiring interview.
I love the challenge you took after the 2008 crash, take big guts to go all in after having blow half of your saving.
As soon as the next recession come, the better, so I can retire too.
We just kept plowing money in the market. Best financial decision ever I’d say (especially compared to selling everything and going to cash near the bottom).