Downsize downsize downsize. Retire today and live comfortably but smaller. Tomorrow is NOT guaranteed. This is coming from someone who retired at 52 seven years ago and diagnosed with cancer this year. My prognosis is good but yours may not. I always said this would never happen to me. But it did. No one can take away the 7+ years I have already enjoyed in retirement.
I lost my wife (of 32 years) last year at the age of 50 to breast cancer. I've decided to retire at 55 (5 years earlier than planned) to enjoy my health because like you, we just don't know what can happen. I officially go into retirement at age 55 next March! Best of luck to you in your recovery and thanks for sharing your experience. 🙏
@@GP-fw8hn enjoy Spain. But if you are from the US don't let them know. There is an anti-American sentiment because of American expat's making it harder for the locals to get affordable rents.
Spot on. I’m going to retire next year at 58. Later than i would have liked but not too late, i hope. Healthy right now but have lost enough people young that I know how short life is.
I had read this article a few days ago and thought the Moneyist's response was incredibly self-righteous and unhelpful. I think your analysis is much better and without judgment.
Totally agree. I doubt the "you're so lucky" message landed well with someone who is all too familiar with all the hard work and sacrifice required to *earn* that salary.
I retired at 57, 7 years ago. My wife and I saved and invested early allowing me to exit the workforce when I did. In retrospect, I should have retired at 55 or even earlier. The key message I would communicate to others is don't delay retirement if you have the financial wherewithal to do so. Too often I have seen many people delay retirement and then experience health issues which constrain the very things they wanted to do post-retirement. Moreover, the most significant benefit of retirement for me is that I no longer have to deal with people I do not want to. That has proved to be the ultimate blessing.
I am still working, but at age 50 switched to working from home 3 days a week. I also have 8 weeks of vacation and 10 holidays. I am still able to spend time with my family and have time for myself. I go to the gym 3-4 times per week, mountain bike, visit friends, garden, clean the house, grocery shop etc. I still earn in the top 5% and plan to retire at age 60. I continue to work so that we have insurance and can support our children in college. Their tuitions are paid for through our 529 plans. We cover their food, cars, insurance, cell phones, computers, clothing etc. They are both straight A students working on STEM degrees. I have six more years to go before retiring. We probably have enough set aside to retire now, but I am hoping to double the amount in the next five years.
Imagine where this guy would be if he didn't let lifestyle creep (the $3M home, the need to send kids to prep school, and probably A LOT of other things) eat up his income.
Agreed. Move to a less expensive area and spend your time homeschooling your kids. One solution to two big costs while also spending more time with your children.
I’ve never seen my expensive home as a lifestyle creep, as I didn’t buy it to impress others, but saw it as a family experience investment when my kids were 18 mo old. It’s where I spend most of my time, raised my kids, formed so many memories, enjoyed its waterfront beauty etc. I have no plans to ever sell it but if I had an unforeseen financial disaster, I have over 2M in equity that gives me a lot of options and breathing room. It’s paid off now and my kids will be leaving for college in 2 years (omg this is literally hard for me to write. It’s taking me back in time to my “why” 14 years ago and admitting my kids won’t live here in 2 years makes me want to cry), so for me the sacrifice of stretching my budget at the time to provide the best experience I could for my kids was well worth it, and it turns out was a fantastic financial decision as well.
@@danh2716I think homeschooling is not a good idea. Kids need to develop an independent identity. Boarding school is probably a better idea than home school though maybe split the difference and just send them to a day school.
You know, I think a big reason we don’t hear about early retirement among wealthy people is privacy. Most don’t really need or want the publicity. They can afford a low profile, and I guess it keeps things simpler for them.
It’s funny, but I think a lot of people don’t relate to the wealthy retiring early. The FI/RE movement is more about minimalism and freedom, not living like a millionaire-so those stories don’t feel as relevant to the average person.
People tend to think of the wealthy as always working or at least keeping busy with some sort of business. So even if they do retire early, it doesn’t fit the same mold we think of when most people talk about retirement
Wealthy people’s lives might not change that much after retirement. They’re used to a lifestyle that includes freedom, travel, and leisure-so stepping back from work may not look like the ‘retirement’ that most people imagine
Another thing is, public conversations about wealth are often about getting rich, not what it’s like to be financially set and step away. Maybe it’s just less talked about because society is so focused on accumulating
There’s also the fact that wealthy people can still be involved in high-profile philanthropy or investments. They might technically be ‘retired,’ but they’re still active in a way that doesn’t look like traditional retirement at all.
My wife and I have a federal, military and social security pensions amounting to over 150k in low cost New Mexico. We didn’t need any saving to retire at 53 but we are now working on our 3rd million 18 years later. Most of that money will go to our 5 kids since we have no need for it.
I am breaking away from the workforce at 49(next year). Going to rent my house out and move to the Philippines to bring my cost of living down and live the island life. Great Content Erin as usual 🐵🏝
If you don't mind me asking what monthly expense budget are you considering? I plan on doing something similar around age 50 except I will likely sell my home and decide between Malaysia, Thailand, Philippines, or Vietnam.
@@ariefraiser140 No, I don't mind at all. My base budget will start at $1500 a month. My plan is to start in Cebu(we have an office out there I may work a little from there if permitted).
Exactly. You finally said it! My health insurance is roughly the same as a lease on a Corvette. And that's with zero pre-existing conditions, no history of cancer, I don't smoke, and I am not obese. 15 year of that nonsense is over $180,000 for one person!
Wife and I retired late 40s/early 50s with a 9m net worth/5m of that liquid (3m+ brokerage vs 2m in retirement) with no debt of any kind. We actually went debt free 3-4 years before retirement including our personal residence and our commercial property. It's just a lot easier when you eliminate the debt and you can spend more on what you want to vs what you have to. Our kids are done with college as well so that helps.
My parents managed an early semi retirement because my dad had a construction job that allowed him to work six months of the year and he had nearly unlimited overtime if he wanted. They lived in a huge motor home and were able to travel close to wherever he was working on the highways. They hit the road the rest of the year traveling with a group of friends all over the country. They eventually hit retirement age in their 60’s and settled in a small house in the south west. It was a good thing they retired early because my dad got colon cancer that took him out in his late sixties.
Here are some ideas for future videos: 1. What time(s) of the year are best for taking RMDs? 2. I'm managing money for my 94 year old mother. What is the best asset mix for an elderly person who may live another 5 years and could require assisted living care? 3. What's your opinion on Charitable Remainder Trusts? 4. Should we adjust our asset allocations as interest rates fall? Thanks!
I fall into this category and decided to retire several years earlier than what is considered normal retirement age of 65. A critical factor is discussed at 8:50 of this video, he seems to enjoy his job. In my case, and I expect many others, the final decision to retire early is driven by your job satisfaction in addition to your financial situation. Count me as someone who doesn’t love Oprah
Laid off in January at age 55, completely unexpectedly after 24 yrs same co. Had no idea of retiring that early, never would have considered it. However, I was also a huge fan of working from home. As someone who's always been shy, I absolutely thrived working from home. They had just called us back in 4 days a week last yr, wasn't happy about that anyway. I have around 2 mil net worth, place to live, no debt, no dependents (though care for a elderly parent). I'm like why should I put myself through the job search trauma, starting over in a new company or career? Yet somehow I feel guilty, like I'm letting society down by not working.
@@lilsaint91 25x my expense is what I am aiming for. However there are unknowns as the recent spike in inflation has skew my expenses. However sometime it’s not up to you as you can lose your job and can’t get the same income again.
That can easily happen, I make over 90% of what I made, all the residual income that my partner and I made over the years went back into the business now we get it monthly. The only disadvantage is my wife and I pay a large amount for our Medicare. But well worth it!!
Good analysis. Early retirement probably needs to support AT LEAST the current spending. With more free time, and youth or with children, often times spending will INCREASE instead of the common assumption of decrease. This example has both youth and children. How much is enough? All we have are round number inputs, so a round number answer is $6,000,000 and be prepared to cut back. Questions for him to answer: * Does your spending include investing and income taxes? Or is your "spending" your income minus what you add to investments every year? * How many weddings do you want to plan to pay for, and what is your limit per wedding? * What are you going to do with your time after retiring, and what is your budget for that? * How much in expenses will go away after you retire?
Totally agree with what you said about peak expense years. They are also in their peak earning years and they would be leaving a lot on the table. Personally, I would work a few more years to cover the mortgage and their children’s educational expense. Kudos to him and his family. First world problems are a great thing to have.
If I was him I would feel much more comfortable waiting five years. However, I could do it now if I continued to add income. Perhaps become a financial advisor or consultant where you can choose your work load. I did flinch when it was questioned what would happen if a child choose an out of state school? Who cares what a child chooses. As the parent who would be paying for that school, you can dictate that your children choose in state.
Based on experience, here's a few big ticket expenses that may have been overlooked which tip the scale towards more building up of the nestegg: 1. Kids grad school 2. Kids weddings 3. Helping kids buy homes 4. Gifts to grandkids including college plan funding 5. Unexpected healthcare costs including assisted care 6. Home capital improvements 7. Vehicle replacement during retirement It's not easy transitioning from income accumulation to the income preservation phase, especially if you've spent decades living below your means. Since life can throw curveballs, for many, "enough" is never enough.
Great advice. All of these have been in the back of my mind as well, and I’ve also started custodial Roth IRAs for my kids but won’t tell them until they are well established in their future careers. I want them to make their own way in life and don’t want to hamper their drive or motivation, but I love the thought of guaranteeing their future retirements. I also want to fund my grandkids education and make it a family tradition to continue doing so, like a pay it forward. I understand the advice given to retire early if you’re able to, because life is short and you don’t know the future, but I really enjoy my profession so I’ll likely continue working 6 more years and retire just prior to my 60th birthday so I can tell myself I retired in my 50’s lol. If it turns out I saved more than I need then I’ll gladly take more vacations etc. I know what you mean about the transition from saver to spender because I think I’ll struggle with it. I’ve always created “forced scarcity” by automatically funneling money towards retirement, other investments, paying off all mortgages etc. I’ve fantasized about ridiculously priced cars, even custom built them out on their websites, but never seriously considered spending what I feel is a complete waste of money. It’s weird but just knowing I could buy something if I chose, is enough to satisfy my cravings. I think if I did something like that, I’d love it for several months but then beat myself up for doing something so frivolous which doesn’t create any meaning or long term happiness. I won’t skimp on experiences however. Anyway, thanks for sharing your experience.
@jaquevius Congrats, you're on the right track and thinking about all the right stuff. I got some great ideas from Bill Perkins' book "Die With Zero"; especially his recommendations to: (1) invest in experiences when you're physically & mentally capable of enjoying them and (2) help your loved ones when their at the age(s) when they'll benefit the most. Oh, and I tried the fancy sports car thing in my mid 40s which was totally overrated for me. I ended up selling it after 2 years at a $50K loss. Don't make my mistake unless pricey material things bring you incredible joy. For me, relationships and experiences matter so much more.
I think of a high-income job as a sort of asset. Once you’re on top of your game, it’s easier to keep making a high income (compared to how much hustle it takes to get there). So it’s the culmination of a lifetime’s work. I think it’s psychologically hard to walk away from an “asset” like that early. And to know it will be hard to re-start at the same income level later.
It's definitely an asset. The only issue is to retain that asset you have to give up so much of your time and autonomy. Unless a person really really loves their job there will come a time when their freedom is more valuable to them. I've met some who can easily leave their job early, want to retire, but are scared of pulling the trigger because that job asset is their security blanket or worse their identity.
Yes and no. Considering his $300K wages will be taxed heavily, the market really only needs to earn about 5% or less before his inveatment gains replace his earnings. The frequent reality for people who accumulate wealth significantly before retirement is that they really just need income sufficient to pay for their current expenses, such that they don't start draining their savings before they hit their number. Now I'm not saying this guy is ready to retire, per se. But the pay/prestige/stress calculations certainly change in your career when you get to a point of significant net worth. Certainly with respect to continuing to put full effort into the rat-race just to "get ahead."
I agree with you Erin, since your example family has young children, they should continue the course and save/invest then retire at age 55 and be able to continue their desired lifestyle.
You are spot on that the kids will be busy a lot of the time. Shoot for more flexibility and make the available time count. Many struggle with the transition to be retired. I assume a high earner who likes what they do (or at least doesn't hate it) will have an even more difficult time. Lay off the gas but don't slam on the brakes. That's what I've already done to maximize my most valuable resource - time.
If this guy were to retire at 50. There’s a very real possibility within a short period of time he might have to downsize without the additional income due to his substantial expenses. How would his wife and children feel about that? I’m guessing they enjoy their current lifestyle and wouldn’t want that to change. I’ve never understood why guys are so quick to walk away from their jobs in their peak earning years of 50 to early 60’s. But you’re absolutely right. Retiring early isn’t out of the question. I’d reevaluate in 5 years to see where things stand. Then every couple years thereafter. I know for me personally I could have retired at 60 on paper easily enough. But that would have left me on a strict budget in retirement and at the mercy of the markets. By working just a few extra years I now have complete financial freedom. Which, for me was well worth it.
that house is a huge cost albatross. I would sell it and put the equity to work and consider living in a country he likes. for me something like Spain or Italy; what an adventure for you and the kids!!. if he wants to stay here then re locate to less expensive state/city
I’d love to retire in my mid to late 50’s to have more time for family and do outdoor activities any day of the week in the middle of the day. If I can do it financially, why trade that time for more money?
We’d all like to retire in our 50’s. However the question becomes do we have enough resources to finance at 35 to 40 year retirement? By working less and living longer, those retirement dollars are going to have to stretch. And the farther out in the future we have to project the less certain we can be.
@@thomasmoshier3920 But if someone believes they have worked out the numbers to leave the workforce in their 50’s and have other desires to do in retirement, why not? Sure there are higher risks with early retirement, but some of us feel the risk is worth it.
In short, he (and anybody looking to retire) should start with the 4% rule of thumb and then adjust it to maybe 3% based on his younger age. This is what we're lacking - a better rule of thumb that gives a percentage withdrawal rate based on age. No one has really done that analysis, have they?
I early retired and would argue that even with my son still in school that I have greatly increased the time AND quality of time I spend with him. I typically get up with him and we have breakfast together before I see him off on the bus, and I then get him at the bus stop after school. I also get to volunteer frequently at his school, which is a view into his growth very few parents get to see. I still cook all the meals like before, so instead of just seeing him mostly from the kitchen and hanging out after dinner every evening I get a lot of actual quality time with him before dinner gets kicked off. I take care of a lot of the chores like shopping and prep for dinner during the day so there are even fewer things keeping me away than before. While not flashy, quantity of time with your little ones is more important than being mostly absent except a few big trips/vacations a year. It is also nice to not be mentally taxed and exhausted from work in the evenings.
This is very solid advice! People who are high-performers and go-getters should probably take their foot off the gas, as opposed to slamming on the brakes. Even just cutting back a bit could really improve quality of life.
Hard to do though. Most high paying jobs aren't about to pay you half your salary to work half-time. I doubt I would even be able to get a third of what I make today if I proposed working half-time to my current employer.
I sincerely doubt “high performers” are capable of taking their foot off the gas. It’s their nature. Perhaps they can retire, but they’re going to need something to do. Maybe they can volunteer or something…
@amypruss8391 How about it? You trade a guaranteed job for self-employment where your contract job is the first to be laid off in a downturn. Obviously, it is an option at any time in your career. But it isn't the same thing as just cutting back at your current job to coast into retirement.
The taxable account is also my favorite because of the flexibility. Finance TH-cam too often says that you need to invest 40K+ every year in tax advantaged accounts before you even consider a taxable account. That doesn’t make sense for everybody, especially if you want to retire early.
First, being able to save/invest $3M on that salary with those expenses is incredible. As you indicate he has too many expenses (current and future) and too high a mortgage to retire right now (unless he wants his kids to go into debt for college). I’m locked in for at least three more years until my youngest finishes her JD. Once that’s done the house will be paid off and the expenses should drop considerably.
Woo Hoo.....I qualify for rich guy except no debt for the last decade. Now if I turn back the clock to when I was 50, I wasn't even close. I don't disagree with FIRE and freedom of choice to select the retirement date that best fits our needs, wants, and desires. I'm just personally glad we stuck in for the last decade when our earnings potential as a couple was at our peak. It set us up much more favorably for the next 30 to 40 years. For those considering FIRE, don't discount the psychological boost you can get from being able to retire, but choosing not to.
Great video. I think 50 for this gentleman is too early especially in light of his fixed expenses. He needs to get his children through prep school and add more to the 529 before he retires. He also needs to explain now to his children that they must go to an in-state public university. If they want to go to some other private university or out-of-state public university, they will need to fund the difference themselves via loans. I think the earliest he should retire at is 60. This gives him 5 solid years before 65. Also, his children should be pretty much self sufficient by that point giving him more freedom to do things. My wife retired at 58 and I retired at 65.5. Unfortunately, she passed away from pancreatic cancer 4 months before I retired. I now wish I had retired earlier. Life is very fickle and you don’t know what is waiting for you around the corner. You need to enjoy life while you can; but, enjoying it too soon can add a lot of stress. Notwithstanding dealing with my wife’s illness and death, I am very grateful for the life I have lived. I have been extremely fortunate and now use my wealth to assist other people. That gives me much more pleasure than buying things for myself.
Fixed expenses are only fixed until you unfix them. Needs to get his children through pep school? No he does not. His children will have to go to a public university - truly tragic. 😢
Hi Erin. Good discussion today, measured and well balanced IMO. If I were him, I would probably work another 5 years or so to allow the situation to adjust a little better and line up for the future. Medical insurance also needs to be considered and factored into his planning. See you on the next one. Larry, Central Valley, Ca.
The key (and Erin touched on it) - IF he wants to keep his living standard the same, he's not ready to retire. But if they make some adjustments, they could EASILY swing it. Simplest one to me is move from a $3MM to a $2MM paid-for home. Even if everything else remains the same in life, your risk is way lower, you still live in a very nice home, and your expenses are lower.
Based on a 3% withdrawal rate… depending how investments are allocated, there are a lot of Dividend based ETFs and stocks that will provide this in dividends and will be taxed as long term capital gains vs. normal income. Never needing to touch the capital in your accounts allows the tree to keep growing and only taking the nuts.
I like Erin’s channel and find her to be direct and helpful. The problem is that people with this type of money likely will have to rely on professional financial planners and accountants to help with their decisions as tax strategies are a big concern. It is a very hard transition into retirement for a person who could accumulate that type of sum of assets. For those individuals being retired even though they can be daunting more because they fear they will not be productive and or stimulated without work. The topic itself seems absurd to most as they will not have the burden of such a nest egg. It shows that the psychological process and well-being are as complex as the financial component. As a 54-year-old who is considering retiring anywhere from 6 hours to 16 years from now, it is not as easy as you would think. If you have something to do it would make it much better. If you could imagine what you freed yourself to do with your life would be a great question to have answered. What would your purpose be after your use to the world is over? If you are lucky, you can do the work that you were born to do for a living. That type of wisdom for a young person is very rare. I would propose that we get a second shot at that dream with the question of what you were born to do after your work. Once that is answered the finances are much easier to determine.
This scenario is at a higher level than my world and probably the majority of people. I retired at 68 but was planning to retire at 70 but COVID hit. I consider myself fortunate to be able to retire and still have my health. If I had this persons scenario I would do what I wanted to do and make adjustments as needed.
I would do the arrange time off for the holidays, kids events, and a big vacation in the summer. And of course keep healthy lifestyle so that your 80s to 100s can be as good as possible. This would model a good work-life balance, make the memories even more memorable with quality over quantity, and ensure they'll have no worries for their retirement. Something to consider, what is the divorce rate for early retirees?
Great video, and you answered exactly what he asked - not if he could retire NOW, but WHEN he could. That could be greatly sped up if he downsizes houses now as other commenters (and you indirectly by preferring a paid off mortgage) have said. And if his decent money habits rub off on his children, there's always a chance for some scholarship money to help offset college costs. All that said, I have a sneaky suspicion that some inheritance money helped with the house, college savings and/or house. $300k income TODAY likely isn't what they earned in the past.
@Erin, paying off a 3% mortgage when Treasuries are yelding 4% + is a bad financial decision. "Piece of mind" of having paid off home is not just overrated, but completely wrong in this scenario. A much better solution is to create an account and invest it into something very conservative like 20/80 stock/bond. Keep funds there and use it for minimum monthly payments during retirement. Now this becomes piece of mind and income generating asset.
Maybe. If they can pay off the home, they can invest a big chunk of the former mortgage payment into something than can earn way more than 4% that Treasuries are paying.
Depends on his after-tax return on the treasuries and any tax benefits from the mortgage interest. Could go either way, but yeah, probably it doesn't make sense to pay off a 3.5% mortgage.
To be honest- not having a mortgage became the most significant thing we did for our mental health in retirement. It meant we could easily move around money to do things in our go go years.
@@JBoy340a I disagree, rather than investing after the mortgage is paid off, they would be better investing the same funds before the mortgage is paid off. This way they increase "time in the market" (market exposure)
@@jabow1878 Mental health can be influenced by logical arguments. My plan is to retire with 15 years left to pay off my house. I know for sure that I will feel much better having liquid assets in account with conservative expected yield of 5% than in a paid off house( iliquid asset) that would only yield me 3%.
i retired at 55 after 25 yrs in my career but saved/ invested 25-35% for most of those yrs (40 and 45% last 2 yrs but worked less during those years, lay off and shortened work yr when i retired). that retirement year would have been my highest salary ever 300K but i only had 8 months of it before retiring. like your plan i did not consider the 529 and home equity in expense planning. drew 3% per year for the first 2 years due to the early retirement age. this was still more than what we used to live on. also rounded down portfolio to 79K less as my retirement starting assets (just as another safety buffer). i still kept my 2.75% mortgage which had 6 yrs left( now only 3 yrs- hey i get a raise in 3 yrs!). this was only about 16% of my initial monthly draw, now only 11.5% of my adjusted monthly draw. 3rd yr of retirement saw a large jump in expenses(inflation and trips) to 4% of initial retirement assets but would have been 3.7% of assets at onset of 3rd yr retirement due to growth. started 4th yr of retirement a few months ago and increased draw again to 4.4% of intial assets but now only 2.9% of 4th yr starting assets . a large taxable brokerage is what makes this possible. i am living on taxable only. untouched retirement assets have grown by 34.6% from retirement. i do roth conversions and pay taxes on them but i don't count the tax i have to pay towards my monthly/yearly draw. since i started retirement with my son in high school, you couldn't really take long trips except during his breaks. my son's 529 was 406K( i had put in 10k per yr from 0-13 yrs old and stopped- 140K in all) at onset of retirement. he is now in 3rd yr of college in state and with state scholarship, expenses have been low and last week it had grown to 457K. for the first time i am getting his scholarship for 2024 reimbursed from his 529 ( without 10% penalty but with marginal tax owed). i will put it in his utma which he takes over next yr. i could replace my highest ever inflation adjusted salary now with the growth in my assets since retirement if i switch to guyton klinger at a still reasonable higher draw rate. i always planned to go on guyton klinger around 60. the huge difference between me and the guy is his huge remaining mortgage and 3 kids with prep school plans and likely expensive universities. we live in a middle class neighborhood and my mortgage was 275K, less than 1.5 times my salary when i bought the house. my assets did double from 50 to 55 and i suspect he will conservatively have 6.5M excluding the 529 by 55 if he waits.
I retired last December at 53. Paid off house. 2 in college but 529s are funded to cover them. My investment income is > 2X my expenses. I agree not to retire from something but to something. I run a non profit and coach high net worth individuals financially. I wake up earlier than I did when working 9-5 as everyday is exciting not having to answer to anyone. My advice....start investing now and let time and compounding do its work. I started investing 25% of my income at age 23....after 30 years it grew into millions. Time in the market...not timing the market.
Retired at 53 with a fraction of what this guy has (but a paid off house). I feel a lot richer than folks shackled to their upscale lifestyle. Just the maintenance, taxes, and insurance on the house is ballpark 40-50K, then there is the remaining mortgage.
I have $270K in NVIDIA . I only got into stocks to try and make anything to help afford some medical infusion treatment that I need. I know it’s a risky game especially for someone like me who isn’t focusing hard on the market. I just don't want to make any wrong move. Do I hold or sell and buy back? Genuinely asking for any advice.
I disagree with paying off the low interest mortgage for this particular gentleman. Though, I do agree that it's a good idea to start your retirement unencumbered by monthly housing payments. In today's landscape fewer and fewer can achieve that. With a 3.4% interest rate, I consider that "free money". By that I mean it can be invested and beat that return, even with a conservative investment strategy. Him being in finance, and with his track record, it should be easily attainable. On a side note; His full retirement age is 67, or older. However, the smart strategy for him is to make his money last until age 70 before collecting Social Security. So, for that reason and the others that you mentioned, he needs to slug it out in finance for a few more years. Or find a less stressful career, one that affords more home time. (Finance can have brutal hours with a very high stress level. Though, the financial returns are large.)
This rich guy sounds fake to me. The $1.2M mortgage alone would be $142K/year, just interest and principal, to pay off in 10 years. Likely a $3M home would also have some hefty taxes, utilities, maintenance, etc. If the $300K/year is gross income, they likely wouldn't be able to save anything, even if they sat in that house and didn't travel, eat out, vacation, or have any hobbies. The math doesn't work.
Yeah, the math don't work. They'd have around $17k/month take home. $12k/mo toward house and $5k/mo for everything else. Their $175k/yr expenses means they would be living off of only $2500/mo and saving $2500/mo of that $5k/mo take home after house. Sure $2500/mo invested for 25yrs at 8% would get you to near $3m, but doubtful they were making $300k/yr for the past 25yrs. Doubtful that they paid down $1.8m or down payment $1.8m to do a $1.2m 10yr. There were other circumstances and income, because the math don't work.
I agree, unless he’s also inherited some money, $300k gross isn’t enough to have built this sort of savings, particularly with the expensive house that has cost 10x his gross salary. The maths doesn’t work as you say.
I like your assessment. My take? He's not really rich. His income is decent, yes, but not sufficient for the lifestyle he's living. And if you subtract his liabilities (mortgage balance, future educational expenses, basic cost of raising his children to adulthood, etc.) from his assets (not including house equity), he has less than $2M. That will safely support spending of less than $100K per year, not the $175K he currently claims. So he's not ready to retire, not without reducing his lifestyle. Downsizing to a $1M house might get him there. I retired at 54, so I'm sympathetic to retiring early and maximizing your "go" years. But, as you said, he needs to be realistic about risk and priorities.
Servicing a $1,200,000 mortgage (plus everything that goes along with that kind of house) on a $300k salary? That's 4x my mortgage, and we are close enough in income levels. I would be hurting and not saving much, and that is with a 2.8% rate.
If i was in his position, make sure my kids understand their share of college funds and that they'll need to figure out what to do if they decide to go out of state. Also, work through their time at school. Never know what kind of expenses could come up and if you want to support them through grad school even a little. Also, cutting expenses to practice what it would be like to retire on whatever withdrawal rate would be smart. Unless he plans on cutting his expenses in half, i dont think he should retire any time soon.
Wish I could talk my wife into downsizing. We are in a 3500 square foot house in So-Cal, don't get me wrong, I love it and love my life, and love the fact that she made 1/2 the money that it took to get us where we are. But what she doesn't realize she needs is a 2000 square foot house (way more than enough) and a 2000 square foot weather-tight storage out-building on the property. I mean if it were up to me, we'd actually get rid of like 80% of the crap we own.
Im retiring this year at 44. I believe most people can retire early if they downsize. Most people spend way more then necessary. If he sold the $3million house and moved to a place where he can buy a house for $500,000. That would add about $1.5 million to his portfolio and gets rid of the mortgage.
EXCELLENT presentation ! Just as a FYI & real world example ( history) I was in a similar situation / dilemma. The age old question of when is enough, enough and trying to predict the future. Seeing one parent die very young and another at average age as well as being in finance (conservative), didn't help my decision. I elected to keep working but at a much slower pace & make small withdrawals from my brokerage account. Went to all my kids events but missed out on any extended time off. Their college was educations were in UGTMA, so that was covered. I did 100% retire at FRA. The Covid stock market had me concerned but had enough to ride it out. I keep 3 years income in liquidity. Large equity in home as my backup or retirement home. Although who knows what will happen in the next 10-25 years, I now look in the rearview mirror and can say I should have done it sooner. Hindsight is always 20/20. My accounts have risen ~30% higher in that time & now have to look at RMD's. I look at this as a good thing vs being broke though.
I retired at age 61 with 25 times my salary - but I was still a bit worried about everything would work out. I lived rather frugally for a few years, just in case. My money was about 50/50 retirement/after tax, and I didn't take anything from my retirement account.
Tough one. He could downsize his house, but doing so will trigger substantial capital gains tax on his property. His $1.8m equity likely has a lot of capital gains attached to it. If he wants to keep his current lifestyle and still plans to pay for all of his kids’ education expenses, then definitely do not retire yet. If they are both working, perhaps one can quit or cut back hours to care for their kids. I too agree on the 3% withdrawal rate for super early retirement , and that amount is not enough to fund his current life.
Interesting! If they aggressively paid off the house in the next several years and switched to almost any jobs they enjoyed, even part-time, they could probably make it work. A nest egg of 3.75m at 3% withdrawal (for their young age) would be $112,500. Without the 64k mortgage each year and the part-time jobs, their $ would likely be more than their expenses. Still, paying for college would likely cost more than they have in the 529 for those 3 kids unless it grows over the next several years.
3% withdrawal is much too conservative. They could easily get away with 5% and even if they eat into the capital a bit, it doesn’t really matter as they’re never going to run out.
The top earners probably don’t get as much attention because they likely have money management, and CFP’s already servicing them. Small fries like myself often do not.
Yeah it has to be a balance because living on the edge financially is stressful and can put a real hurt on when those unexpected expenses come. Imagine being retired and getting your place destroyed or seriously damaged in on of the recent hurricanes and flooding. Your life would be turned upside down without some serious nest egg.
55 would be a far better plan, especially if one or more of the kids will have finished their education by then. I’d also consider completing the first year or two of post HS education at a local community college where the cost of tuition, room and board will be far lower. This would be an even better idea if one or more of the kids is either uncertain of their major or just decides that college is not for them and would prefer to pursue a trade. I also like the fact that he is in finance and loves doing it. A large investment portfolio can be a post retirement sandbox to play in and 5 more years of work isn’t so much a chore for him.
I retired at 65 but continued to work part time in a job that I love. I wanted to cut back not check out. It’s great because I still do very satisfying work but also have the time to spend with my kids and grand kids and get things done around the house. Retirement looks different for everyone. Some people would hate continuing to work but it fits my goals and personal lifestyle very well.
I agree with your assessment of another 5 years. He is doing well and will need something to do. If he is highly motivated I don’t see him quitting working. It may be small but what about SS? Medical? Costs tend to trickle in with kids.
$175k/year in expenses bringing in $300k does not actually allow for a very aggressive savings rate. He has 3 children, that's the problem. And no, he can't retire just yet without selling the house. The issue is you don't just want to keep the lifestyle in early retirement, you get more time and you want to fill it with stuff other than working, so you want to spend more in most cases, not just as much. It is what it is. Retirement math is tough, having more money makes it harder, not easier, as SS basically gives you next to nothing at those numbers, and taxes are higher.
I'd sell the house, and find something I could pay cash for. At 1.8 million dollars, It's pretty fair to say they can find a very nice home they could all fit in quite comfortably. Now without a mortgage, and lower taxes and homeowner's insurance, expenses should be significantly lower. I'd still work for five years focusing on putting that extra money aside about 50/50 in the 529 and the investment account. I'd be hesitant to stop working until all children are done with school, and in the workforce. The fewer people you have to take care of, the less unexpected expenses you will have, and therefore the easier your retirement will be.
Retire at 55 and get access to your current 401k, use the time from now and then to pay extra on the mortgage while at the same time finding expenses to cut. Or maybe he sells the house outright and finds something cheaper that he can pay off quickly. If he’s happy with his employment then I’d start with working until 55 and reevaluate at that point. But if you’re gearing up for retirement with at least 5 years to prepare and a great starting point should make the outlook a lot rosier. Lifestyle creep is his biggest challenge but that’s not the worst problem to face.
My first thought is that he should continue working to pay off the mortgage. Then wait until the kids are out of the house (this may be a big IF these days). If the kids are out of the house then they may be able to move to a luxurious but still less expensive location/house (i.e. downsize). Don’t wait for the kids to finish university but be realistic about what this is going to cost. Maybe target a 55 year old retirement age. I retired at 55 with a good pension. I highly recommend retiring at 55 for the healthy time in retirement.
Erin - it’s been a while since you have talked about retiring abroad. Maybe it’s time to revisit this? You interviewed me several years ago about Thailand.
Another thought: I was in a similar situation although I did not have as much savings. When our children were entering their teenage years they began to build their own lives. They got involved in High school sports, clubs and other activities. In High school they both got part time jobs. If I had retired at that time I would have actually seen less of them. I ended up taking on a hobby to occupy my spare time (ironman triathlons). I also did some volunteer work. Yes it is great spending time with our children but they will begin to build their own lives at an early age. My first suggestion would be that this person look at how he is spending his spare time and look to find a satisfying hobby or activity. Maybe volunteer work that he can share with his family.
Couple ideas...reduce expenses and then look at retiring at 55. In doing that he will be well on his way of having enough. He is definitely in a great spot and in like the top 2% of Americans with networth
I retired at 51 and I liked what I did but that came with a restriction that my hobby projects would all be encumbered, and the company had evolved from engineering driven to a typical big company bureaucracy. Two financial advisors came to the same conclusion that I no longer needed the income to sustain my current lifestyle to their end of life estimates, so rather than keep working I decided it was time to retire and focus on personal projects, some of which could be profitable, but none of which need to be. My experience with my grandfather dying at 62 and my father at 76 tells me I should take the time I can when I can because tomorrow existing for me is not a certainty. Maybe one day I'll even be making a click bait video about quitting work to focus on TH-cam with zero subscribers.
Makes me feel pretty good. We have more and have less debt and less spending. I can't wait to downsize and get the last kid off the college payroll. 2 more years!
There is at least 2 ways to tap his 401K before 59.5 without a penalty that I am 90% sure is possible. 1 He could go the route of substantially equal distributions based on his life expectancy. 2 he could work until 55 and take withdrawals penalty free known as the rule of 55. And a 3rd way which I don't recommend is Total Disability which is how I got my SSDI and penalty free access to my Simple IRA. But I assumed that he is healthy. The rule of 55 means he couldn't quit at 50 but he could at 55 penalty free.
Did I miss any mention of inheritance? Both sides of it matters, if they might receive a large inheritance from their parents, or if they want to leave generational wealth to their children.
I'm glad we didn't get talked into a 529 plan. We only had one child so it was more of an all or nothing risk, he ended up going to a public university that cost less than $5k/year and dropped out in the second year during the pandemic. I had paid off the house before he graduated college so had more than enough extra cash flow to cover all college costs (including $10k for the dorm the first year). Would still be kicking myself if I had $100k sitting in a 529 that I had no access too while hoping for a grandchild.
There is a presumption in the original question, rather antiquated, that being in the workforce is either an "on" or "off" proposition. "Retirement" per se shouldn't even be a question for an individual like this one who has a track record of achievement. You don't just turn off this drive when you quit a 9 - 5. My brother is the poster child for this, "retired" at 45 when he sold his business, drove his family crazy, and is now back in the workforce as a means to occupy his time. While this individual is in his peak expense years, he is also in his peak earning power years. But that can also mean peak earnings on a part time or contextual basis. If he had a "side hustle" while nominally retired from a 9 - 5, he could have some inbound household income that could defray expenses until a more classic retirement age. If his career was that good in finance, that could mean contributing to a family office (private hedge fund), getting involved in a start up, or switching to corporate governance as a paid board member. Such a strategy would also give him an opportunity to actively manage his own funds, oriented towards growth and not income.
Hi Erin, I agree with your analysis. I also agee with your preliminary statement about being grateful. Now I am no longer able to consider "early retirement", as I post social security age, and and although I have substantially more than this person. I dont understand a few things. First, why do people not consider this question from a "burn rate" perspective first. In other words, the question I would have firto him, is while you know what you are spending now, how much could you reduce that . Also, what is his plan, almost certainley he will do "something" where he can earn money. Once he can determine the "burn rate" and the post "retirement " acttive income, he could a "retirement / montecarlo" analysis and see the probability and at what groth rate his portfolio could handle. THe other question, and I dont quite understand, is why give up on a successful career. I know when I was working, I emjoyed many aspects of the work. I have to beleive with his salary he gets some "perks" that I bet he will miss too.
I'd stick with 4% distributions since that's already a conservative number. I imagine in 4 to 10 years, the 529 plan could be close to reaching $460k. But yeah, with a big family, retiring at 50 with his assets/liabilities sounds a bit early.
I am absolutely ageist parents paying for their kids collage. If you tell the kids hey collage is on me the kids will be "Hey 8+ years of party time!!!" If you tell the kids hey that's on you, you better not screw this up as I wont bail you out if you mess it up. The kids will first decide if collage is actually for them or maybe a triad school instead. Now you could split the difference and say OK triad school cost X so I will give you X to pay for extended schooling to start a career.
As someone who had parents not in a financial situation to pay for college and needing to put all of it on loans, I can't imagine it. Seems insane to pay $100,000's per kid. Not sure I want to have kids, but at best I'd think of chipping in some not paying in full. They need skin in the game for their own future.
I think planning to retire early makes sense if you can make the numbers work. I went part time at 56 and just retired full time at 59 when I could live comfortably off 4% of my investments. Paying for 15 years of health insurance for 5 people could cost 600k plus. If I was in his shoes, I would target 60 years old with no debt and 4 million in investments.
It's possible, maybe even likely, that the man's 401(k) would be accessible without penalty at the age of 55 or up to 1 year before, depending on the exact date he was born, due to the "Rule of 55".
It would also be good to know if this 401k includes the clause that he can withdraw funds at the age of 55 with no penalties if he were to separate from service after age 55.
This guy reminds me of the Financial Samurai. Sam Dogen was doing Fat (more like Obese) FIRE but now has to return to work because his lifestyle inflation is so extreme. This guy could fall into the same trap if he tries to retire early. He either needs to keep working to have enough money for the things he wants to do (fund multiple 529s, private schools, etc.) or drastically deflate his lifestyle and goals (sell the $3M house, send his kids to public school, etc.) so that he can retire early. I think your plan of really focusing on funding 529s, paying off the mortgage, etc. and re-accessing the situation in 5 years is spot-on.
If their kids are smart they don't need expensive prep school and fancy ivy league colleges to be successful. They can start taking college credits in high school and graduate early. The savings can be used to help the kids with a down payment on a house instead of them being $100,000k in debt Sell the house and move to an area you can have a modest $500k house and retire now
I agree with downsizing. The only caveat would be if you live in a place like Cali (where I live) and you’re grandfathered into lower property taxes based on the purchase price of your home. I bought my house from a guy for double what he paid for it 5 years before. In the last 7 years since I bought it, the price has doubled again. He paid $2,500/year in property tax, I pay $5k/year. I couldn’t afford to buy this place today with the $10k/year property tax bill it’d have due to the price doubling since I bought it. So this is likely our forever home.
Yes, and this is super easy to be unrealistic about. What you'd do if you didn't have work on Monday is a totally different mentality from what you'd do if you never had to work at all. I don't know of a great way to simulate this without actually doing it.
@@caustinolino3687 It wouldn't be perfect but if you could take maybe 3wks off work without having set plans ahead of time, that'd probably give a good idea.
I won’t retire until my last child is out of college and my mortgage is paid off. 5 to six years for mortgage. Depending on my youngest child’s path, could be 5 or 6 years. It’s important for me to get kids self sufficient and out of school with no loans. Already have 2 through, working on the last one.
I hate to throw cold water on this, but we made 299,xxx last year, so 300k. Taxes and withholdings knock that to 161k or $13,500/ month. And this guy has a 12k/month mortgage and managed to save $3.75m in brokerage and $700k 401k and $250k 529? Am I missing something here?
If you are a high earner, you likely can work enough to maintain contacts, have some passive income, and if you want to return back to working, you can. Take a few years off, work a bit when you want, and go from there.
Paying for kids in prep school, and a three million dollar house tells me this gentleman likes to spend money. The 175K annual expenses is low. He is going to be spending much more than that. Without making some changes he definitely needs to continue earning income for a while longer unless he makes some spending changes. Yes, kids are really expensive.
Have you ever talked about retirement abroad? I might want to move to Mexico if there was a way to keep my Vanguard, Fidelity, and TSP accounts. Is there a way? I read on Bogleheads, that Vanguard would actually close people's accounts if they found out they were no longer U.S. residents (even if they remained U.S. citizens).
It’s really heartbreaking to see how inflation and recession impact low-income families. The cost of living keeps rising, and many struggle just to meet basic needs, let alone save or invest. It’s a reminder of the importance of finding ways to create financial opportunities. You've helped me a lot sir Brian! Imagine i invested $50,000 and received $190,500 after 14 days
Huh. I am close to the 'rich guy' retirement I guess. Downsized at 48. I have a wife and 2 young kids (10,12). Following assets - $2.4 million in post-tax savings $100k in emergency fund $850k in 401k/IRA $900k home fully paid for We use our post-tax account for current income using a dividend strategy which yields 7%. We use our 401k for long term investments into VOO, QQQ, etc. We live off of $160k per year and expect when we get to 60, the 401k will be worth about $1.2M.
Downsize downsize downsize. Retire today and live comfortably but smaller. Tomorrow is NOT guaranteed. This is coming from someone who retired at 52 seven years ago and diagnosed with cancer this year. My prognosis is good but yours may not. I always said this would never happen to me. But it did. No one can take away the 7+ years I have already enjoyed in retirement.
amen brother. Im 57 (just turned) and I am OUT come next March and then off to Spain for a few months to LIVE!!
I lost my wife (of 32 years) last year at the age of 50 to breast cancer. I've decided to retire at 55 (5 years earlier than planned) to enjoy my health because like you, we just don't know what can happen. I officially go into retirement at age 55 next March! Best of luck to you in your recovery and thanks for sharing your experience. 🙏
@@GP-fw8hn enjoy Spain. But if you are from the US don't let them know. There is an anti-American sentiment because of American expat's making it harder for the locals to get affordable rents.
@@daved2023I'm sorry for the loss of your wife.
Spot on. I’m going to retire next year at 58. Later than i would have liked but not too late, i hope. Healthy right now but have lost enough people young that I know how short life is.
I had read this article a few days ago and thought the Moneyist's response was incredibly self-righteous and unhelpful. I think your analysis is much better and without judgment.
Totally agree. I doubt the "you're so lucky" message landed well with someone who is all too familiar with all the hard work and sacrifice required to *earn* that salary.
I retired at 57, 7 years ago. My wife and I saved and invested early allowing me to exit the workforce when I did. In retrospect, I should have retired at 55 or even earlier.
The key message I would communicate to others is don't delay retirement if you have the financial wherewithal to do so. Too often I have seen many people delay retirement and then experience health issues which constrain the very things they wanted to do post-retirement.
Moreover, the most significant benefit of retirement for me is that I no longer have to deal with people I do not want to. That has proved to be the ultimate blessing.
I am still working, but at age 50 switched to working from home 3 days a week. I also have 8 weeks of vacation and 10 holidays. I am still able to spend time with my family and have time for myself. I go to the gym 3-4 times per week, mountain bike, visit friends, garden, clean the house, grocery shop etc. I still earn in the top 5% and plan to retire at age 60. I continue to work so that we have insurance and can support our children in college. Their tuitions are paid for through our 529 plans. We cover their food, cars, insurance, cell phones, computers, clothing etc. They are both straight A students working on STEM degrees. I have six more years to go before retiring. We probably have enough set aside to retire now, but I am hoping to double the amount in the next five years.
Imagine where this guy would be if he didn't let lifestyle creep (the $3M home, the need to send kids to prep school, and probably A LOT of other things) eat up his income.
Agreed. Move to a less expensive area and spend your time homeschooling your kids. One solution to two big costs while also spending more time with your children.
💯
I’ve never seen my expensive home as a lifestyle creep, as I didn’t buy it to impress others, but saw it as a family experience investment when my kids were 18 mo old. It’s where I spend most of my time, raised my kids, formed so many memories, enjoyed its waterfront beauty etc. I have no plans to ever sell it but if I had an unforeseen financial disaster, I have over 2M in equity that gives me a lot of options and breathing room. It’s paid off now and my kids will be leaving for college in 2 years (omg this is literally hard for me to write. It’s taking me back in time to my “why” 14 years ago and admitting my kids won’t live here in 2 years makes me want to cry), so for me the sacrifice of stretching my budget at the time to provide the best experience I could for my kids was well worth it, and it turns out was a fantastic financial decision as well.
@@jaquevius Agreed! That’s what money is for 💯
@@danh2716I think homeschooling is not a good idea. Kids need to develop an independent identity. Boarding school is probably a better idea than home school though maybe split the difference and just send them to a day school.
You know, I think a big reason we don’t hear about early retirement among wealthy people is privacy. Most don’t really need or want the publicity. They can afford a low profile, and I guess it keeps things simpler for them.
It’s funny, but I think a lot of people don’t relate to the wealthy retiring early. The FI/RE movement is more about minimalism and freedom, not living like a millionaire-so those stories don’t feel as relevant to the average person.
People tend to think of the wealthy as always working or at least keeping busy with some sort of business. So even if they do retire early, it doesn’t fit the same mold we think of when most people talk about retirement
Wealthy people’s lives might not change that much after retirement. They’re used to a lifestyle that includes freedom, travel, and leisure-so stepping back from work may not look like the ‘retirement’ that most people imagine
Another thing is, public conversations about wealth are often about getting rich, not what it’s like to be financially set and step away. Maybe it’s just less talked about because society is so focused on accumulating
There’s also the fact that wealthy people can still be involved in high-profile philanthropy or investments. They might technically be ‘retired,’ but they’re still active in a way that doesn’t look like traditional retirement at all.
My wife and I have a federal, military and social security pensions amounting to over 150k in low cost New Mexico. We didn’t need any saving to retire at 53 but we are now working on our 3rd million 18 years later. Most of that money will go to our 5 kids since we have no need for it.
Would you be open to giving to less privileged kids?
I am breaking away from the workforce at 49(next year). Going to rent my house out and move to the Philippines to bring my cost of living down and live the island life. Great Content Erin as usual 🐵🏝
If you don't mind me asking what monthly expense budget are you considering? I plan on doing something similar around age 50 except I will likely sell my home and decide between Malaysia, Thailand, Philippines, or Vietnam.
@@ariefraiser140 No, I don't mind at all. My base budget will start at $1500 a month. My plan is to start in Cebu(we have an office out there I may work a little from there if permitted).
Don’t forget about medical insurance for the entire family…
So true, 15 and 17 years before Medicare kicks in and the kids!!
Exactly. You finally said it! My health insurance is roughly the same as a lease on a Corvette. And that's with zero pre-existing conditions, no history of cancer, I don't smoke, and I am not obese. 15 year of that nonsense is over $180,000 for one person!
@@Duke_of_Prunes on the bright side, the medical insurance saved you from being the cliche of an old man with a Corvette.
@@slightfimulator4888 My Ford truck is only 27 year old. Plenty of life left in it.
Wife and I retired late 40s/early 50s with a 9m net worth/5m of that liquid (3m+ brokerage vs 2m in retirement) with no debt of any kind. We actually went debt free 3-4 years before retirement including our personal residence and our commercial property. It's just a lot easier when you eliminate the debt and you can spend more on what you want to vs what you have to. Our kids are done with college as well so that helps.
well done!
My parents managed an early semi retirement because my dad had a construction job that allowed him to work six months of the year and he had nearly unlimited overtime if he wanted. They lived in a huge motor home and were able to travel close to wherever he was working on the highways. They hit the road the rest of the year traveling with a group of friends all over the country. They eventually hit retirement age in their 60’s and settled in a small house in the south west. It was a good thing they retired early because my dad got colon cancer that took him out in his late sixties.
Here are some ideas for future videos:
1. What time(s) of the year are best for taking RMDs?
2. I'm managing money for my 94 year old mother. What is the best asset mix for an elderly person who may live another 5 years and could require assisted living care?
3. What's your opinion on Charitable Remainder Trusts?
4. Should we adjust our asset allocations as interest rates fall?
Thanks!
All noted, and I appreciate the suggestions!!
I fall into this category and decided to retire several years earlier than what is considered normal retirement age of 65. A critical factor is discussed at 8:50 of this video, he seems to enjoy his job. In my case, and I expect many others, the final decision to retire early is driven by your job satisfaction in addition to your financial situation.
Count me as someone who doesn’t love Oprah
Oprah is a race hustler and a con.
Laid off in January at age 55, completely unexpectedly after 24 yrs same co. Had no idea of retiring that early, never would have considered it. However, I was also a huge fan of working from home. As someone who's always been shy, I absolutely thrived working from home. They had just called us back in 4 days a week last yr, wasn't happy about that anyway. I have around 2 mil net worth, place to live, no debt, no dependents (though care for a elderly parent). I'm like why should I put myself through the job search trauma, starting over in a new company or career? Yet somehow I feel guilty, like I'm letting society down by not working.
@@Robert-z8z1z 2M in net worth and you're complaining? lol
Once you slow down or step away, it is near impossible to get back to your previous earning power
this is why i have trouble setting an age to retire at, what conclusion did you come to yourself?
Unless your expenses are equal to your previous earning power, why is that even a goal?
@@lilsaint91 25x my expense is what I am aiming for. However there are unknowns as the recent spike in inflation has skew my expenses. However sometime it’s not up to you as you can lose your job and can’t get the same income again.
Once you're dead, it is impossible to retire and keep living
@@webcompanion true. you have to find a balance.
Many of us have to do FIRE on a low income. I am building my parachute on the way down. I make more in retirement than I made when working.
That can easily happen, I make over 90% of what I made, all the residual income that my partner and I made over the years went back into the business now we get it monthly. The only disadvantage is my wife and I pay a large amount for our Medicare. But well worth it!!
@@kirklandphil we also pay for medicare, but IMHO that is a better choice than having insufficient income in you late 60s.
@@JBoy340a So true JBoy. Take care.
Good analysis. Early retirement probably needs to support AT LEAST the current spending. With more free time, and youth or with children, often times spending will INCREASE instead of the common assumption of decrease. This example has both youth and children. How much is enough? All we have are round number inputs, so a round number answer is $6,000,000 and be prepared to cut back.
Questions for him to answer:
* Does your spending include investing and income taxes? Or is your "spending" your income minus what you add to investments every year?
* How many weddings do you want to plan to pay for, and what is your limit per wedding?
* What are you going to do with your time after retiring, and what is your budget for that?
* How much in expenses will go away after you retire?
Totally agree with what you said about peak expense years. They are also in their peak earning years and they would be leaving a lot on the table. Personally, I would work a few more years to cover the mortgage and their children’s educational expense. Kudos to him and his family. First world problems are a great thing to have.
If I was him I would feel much more comfortable waiting five years. However, I could do it now if I continued to add income. Perhaps become a financial advisor or consultant where you can choose your work load. I did flinch when it was questioned what would happen if a child choose an out of state school? Who cares what a child chooses. As the parent who would be paying for that school, you can dictate that your children choose in state.
Based on experience, here's a few big ticket expenses that may have been overlooked which tip the scale towards more building up of the nestegg:
1. Kids grad school
2. Kids weddings
3. Helping kids buy homes
4. Gifts to grandkids including college plan funding
5. Unexpected healthcare costs including assisted care
6. Home capital improvements
7. Vehicle replacement during retirement
It's not easy transitioning from income accumulation to the income preservation phase, especially if you've spent decades living below your means. Since life can throw curveballs, for many, "enough" is never enough.
Great advice. All of these have been in the back of my mind as well, and I’ve also started custodial Roth IRAs for my kids but won’t tell them until they are well established in their future careers. I want them to make their own way in life and don’t want to hamper their drive or motivation, but I love the thought of guaranteeing their future retirements. I also want to fund my grandkids education and make it a family tradition to continue doing so, like a pay it forward. I understand the advice given to retire early if you’re able to, because life is short and you don’t know the future, but I really enjoy my profession so I’ll likely continue working 6 more years and retire just prior to my 60th birthday so I can tell myself I retired in my 50’s lol. If it turns out I saved more than I need then I’ll gladly take more vacations etc. I know what you mean about the transition from saver to spender because I think I’ll struggle with it. I’ve always created “forced scarcity” by automatically funneling money towards retirement, other investments, paying off all mortgages etc. I’ve fantasized about ridiculously priced cars, even custom built them out on their websites, but never seriously considered spending what I feel is a complete waste of money. It’s weird but just knowing I could buy something if I chose, is enough to satisfy my cravings. I think if I did something like that, I’d love it for several months but then beat myself up for doing something so frivolous which doesn’t create any meaning or long term happiness. I won’t skimp on experiences however. Anyway, thanks for sharing your experience.
@jaquevius Congrats, you're on the right track and thinking about all the right stuff.
I got some great ideas from Bill Perkins' book "Die With Zero"; especially his recommendations to: (1) invest in experiences when you're physically & mentally capable of enjoying them and (2) help your loved ones when their at the age(s) when they'll benefit the most.
Oh, and I tried the fancy sports car thing in my mid 40s which was totally overrated for me. I ended up selling it after 2 years at a $50K loss. Don't make my mistake unless pricey material things bring you incredible joy. For me, relationships and experiences matter so much more.
I throw 200 bucks in the savings account right away and then 20 bucks here and there after bills. That really worked for me to get over the hill.
I think of a high-income job as a sort of asset. Once you’re on top of your game, it’s easier to keep making a high income (compared to how much hustle it takes to get there). So it’s the culmination of a lifetime’s work. I think it’s psychologically hard to walk away from an “asset” like that early. And to know it will be hard to re-start at the same income level later.
It's definitely an asset. The only issue is to retain that asset you have to give up so much of your time and autonomy. Unless a person really really loves their job there will come a time when their freedom is more valuable to them. I've met some who can easily leave their job early, want to retire, but are scared of pulling the trigger because that job asset is their security blanket or worse their identity.
This is a great way to look at his job. If multiply PE, the value of this "asset" is 27 X 300k = 8.1 million
Yes and no. Considering his $300K wages will be taxed heavily, the market really only needs to earn about 5% or less before his inveatment gains replace his earnings.
The frequent reality for people who accumulate wealth significantly before retirement is that they really just need income sufficient to pay for their current expenses, such that they don't start draining their savings before they hit their number.
Now I'm not saying this guy is ready to retire, per se. But the pay/prestige/stress calculations certainly change in your career when you get to a point of significant net worth. Certainly with respect to continuing to put full effort into the rat-race just to "get ahead."
I agree with you Erin, since your example family has young children, they should continue the course and save/invest then retire at age 55 and be able to continue their desired lifestyle.
You are spot on that the kids will be busy a lot of the time. Shoot for more flexibility and make the available time count. Many struggle with the transition to be retired. I assume a high earner who likes what they do (or at least doesn't hate it) will have an even more difficult time. Lay off the gas but don't slam on the brakes. That's what I've already done to maximize my most valuable resource - time.
If this guy were to retire at 50. There’s a very real possibility within a short period of time he might have to downsize without the additional income due to his substantial expenses. How would his wife and children feel about that? I’m guessing they enjoy their current lifestyle and wouldn’t want that to change. I’ve never understood why guys are so quick to walk away from their jobs in their peak earning years of 50 to early 60’s.
But you’re absolutely right. Retiring early isn’t out of the question. I’d reevaluate in 5 years to see where things stand. Then every couple years thereafter. I know for me personally I could have retired at 60 on paper easily enough. But that would have left me on a strict budget in retirement and at the mercy of the markets. By working just a few extra years I now have complete financial freedom. Which, for me was well worth it.
that house is a huge cost albatross. I would sell it and put the equity to work and consider living in a country he likes. for me something like Spain or Italy; what an adventure for you and the kids!!. if he wants to stay here then re locate to less expensive state/city
I’d love to retire in my mid to late 50’s to have more time for family and do outdoor activities any day of the week in the middle of the day. If I can do it financially, why trade that time for more money?
Yeah, retiring to Spain or Italy would have virtually no appeal to my children at that age or my wife.
We’d all like to retire in our 50’s. However the question becomes do we have enough resources to finance at 35 to 40 year retirement? By working less and living longer, those retirement dollars are going to have to stretch. And the farther out in the future we have to project the less certain we can be.
@@thomasmoshier3920 But if someone believes they have worked out the numbers to leave the workforce in their 50’s and have other desires to do in retirement, why not? Sure there are higher risks with early retirement, but some of us feel the risk is worth it.
I have a mortgage also. At times, I do feel uneasy about it, but I also could pay it off if I choose to.
In short, he (and anybody looking to retire) should start with the 4% rule of thumb and then adjust it to maybe 3% based on his younger age. This is what we're lacking - a better rule of thumb that gives a percentage withdrawal rate based on age. No one has really done that analysis, have they?
I love The Moneyist. Very good advice from a very intelligent, kind person. I'm glad you watch him too.
I early retired and would argue that even with my son still in school that I have greatly increased the time AND quality of time I spend with him. I typically get up with him and we have breakfast together before I see him off on the bus, and I then get him at the bus stop after school. I also get to volunteer frequently at his school, which is a view into his growth very few parents get to see. I still cook all the meals like before, so instead of just seeing him mostly from the kitchen and hanging out after dinner every evening I get a lot of actual quality time with him before dinner gets kicked off. I take care of a lot of the chores like shopping and prep for dinner during the day so there are even fewer things keeping me away than before. While not flashy, quantity of time with your little ones is more important than being mostly absent except a few big trips/vacations a year. It is also nice to not be mentally taxed and exhausted from work in the evenings.
This is very solid advice! People who are high-performers and go-getters should probably take their foot off the gas, as opposed to slamming on the brakes. Even just cutting back a bit could really improve quality of life.
Hard to do though. Most high paying jobs aren't about to pay you half your salary to work half-time.
I doubt I would even be able to get a third of what I make today if I proposed working half-time to my current employer.
I sincerely doubt “high performers” are capable of taking their foot off the gas. It’s their nature. Perhaps they can retire, but they’re going to need something to do. Maybe they can volunteer or something…
@@danh2716 How about consulting?
@amypruss8391 How about it? You trade a guaranteed job for self-employment where your contract job is the first to be laid off in a downturn. Obviously, it is an option at any time in your career. But it isn't the same thing as just cutting back at your current job to coast into retirement.
@@danh2716 But aren't we comparing consulting to early retirement at 50? That's the comparison: some/unpredictable employment income versus no income.
The taxable account is also my favorite because of the flexibility. Finance TH-cam too often says that you need to invest 40K+ every year in tax advantaged accounts before you even consider a taxable account. That doesn’t make sense for everybody, especially if you want to retire early.
First, being able to save/invest $3M on that salary with those expenses is incredible. As you indicate he has too many expenses (current and future) and too high a mortgage to retire right now (unless he wants his kids to go into debt for college). I’m locked in for at least three more years until my youngest finishes her JD. Once that’s done the house will be paid off and the expenses should drop considerably.
Woo Hoo.....I qualify for rich guy except no debt for the last decade. Now if I turn back the clock to when I was 50, I wasn't even close. I don't disagree with FIRE and freedom of choice to select the retirement date that best fits our needs, wants, and desires. I'm just personally glad we stuck in for the last decade when our earnings potential as a couple was at our peak. It set us up much more favorably for the next 30 to 40 years. For those considering FIRE, don't discount the psychological boost you can get from being able to retire, but choosing not to.
Great video. I think 50 for this gentleman is too early especially in light of his fixed expenses. He needs to get his children through prep school and add more to the 529 before he retires. He also needs to explain now to his children that they must go to an in-state public university. If they want to go to some other private university or out-of-state public university, they will need to fund the difference themselves via loans. I think the earliest he should retire at is 60. This gives him 5 solid years before 65. Also, his children should be pretty much self sufficient by that point giving him more freedom to do things. My wife retired at 58 and I retired at 65.5. Unfortunately, she passed away from pancreatic cancer 4 months before I retired. I now wish I had retired earlier. Life is very fickle and you don’t know what is waiting for you around the corner. You need to enjoy life while you can; but, enjoying it too soon can add a lot of stress. Notwithstanding dealing with my wife’s illness and death, I am very grateful for the life I have lived. I have been extremely fortunate and now use my wealth to assist other people. That gives me much more pleasure than buying things for myself.
Fixed expenses are only fixed until you unfix them. Needs to get his children through pep school? No he does not. His children will have to go to a public university - truly tragic. 😢
Hi Erin. Good discussion today, measured and well balanced IMO. If I were him, I would probably work another 5 years or so to allow the situation to adjust a little better and line up for the future. Medical insurance also needs to be considered and factored into his planning. See you on the next one. Larry, Central Valley, Ca.
The key (and Erin touched on it) - IF he wants to keep his living standard the same, he's not ready to retire. But if they make some adjustments, they could EASILY swing it. Simplest one to me is move from a $3MM to a $2MM paid-for home. Even if everything else remains the same in life, your risk is way lower, you still live in a very nice home, and your expenses are lower.
Based on a 3% withdrawal rate… depending how investments are allocated, there are a lot of Dividend based ETFs and stocks that will provide this in dividends and will be taxed as long term capital gains vs. normal income. Never needing to touch the capital in your accounts allows the tree to keep growing and only taking the nuts.
I like Erin’s channel and find her to be direct and helpful. The problem is that people with this type of money likely will have to rely on professional financial planners and accountants to help with their decisions as tax strategies are a big concern.
It is a very hard transition into retirement for a person who could accumulate that type of sum of assets. For those individuals being retired even though they can be daunting more because they fear they will not be productive and or stimulated without work. The topic itself seems absurd to most as they will not have the burden of such a nest egg. It shows that the psychological process and well-being are as complex as the financial component. As a 54-year-old who is considering retiring anywhere from 6 hours to 16 years from now, it is not as easy as you would think.
If you have something to do it would make it much better. If you could imagine what you freed yourself to do with your life would be a great question to have answered. What would your purpose be after your use to the world is over? If you are lucky, you can do the work that you were born to do for a living. That type of wisdom for a young person is very rare. I would propose that we get a second shot at that dream with the question of what you were born to do after your work.
Once that is answered the finances are much easier to determine.
This scenario is at a higher level than my world and probably the majority of people. I retired at 68 but was planning to retire at 70 but COVID hit. I consider myself fortunate to be able to retire and still have my health. If I had this persons scenario I would do what I wanted to do and make adjustments as needed.
I would do the arrange time off for the holidays, kids events, and a big vacation in the summer. And of course keep healthy lifestyle so that your 80s to 100s can be as good as possible.
This would model a good work-life balance, make the memories even more memorable with quality over quantity, and ensure they'll have no worries for their retirement.
Something to consider, what is the divorce rate for early retirees?
Great video, and you answered exactly what he asked - not if he could retire NOW, but WHEN he could. That could be greatly sped up if he downsizes houses now as other commenters (and you indirectly by preferring a paid off mortgage) have said. And if his decent money habits rub off on his children, there's always a chance for some scholarship money to help offset college costs.
All that said, I have a sneaky suspicion that some inheritance money helped with the house, college savings and/or house. $300k income TODAY likely isn't what they earned in the past.
@Erin, paying off a 3% mortgage when Treasuries are yelding 4% + is a bad financial decision.
"Piece of mind" of having paid off home is not just overrated, but completely wrong in this scenario.
A much better solution is to create an account and invest it into something very conservative like 20/80 stock/bond. Keep funds there and use it for minimum monthly payments during retirement. Now this becomes piece of mind and income generating asset.
Maybe. If they can pay off the home, they can invest a big chunk of the former mortgage payment into something than can earn way more than 4% that Treasuries are paying.
Depends on his after-tax return on the treasuries and any tax benefits from the mortgage interest. Could go either way, but yeah, probably it doesn't make sense to pay off a 3.5% mortgage.
To be honest- not having a mortgage became the most significant thing we did for our mental health in retirement. It meant we could easily move around money to do things in our go go years.
@@JBoy340a I disagree, rather than investing after the mortgage is paid off, they would be better investing the same funds before the mortgage is paid off. This way they increase "time in the market" (market exposure)
@@jabow1878 Mental health can be influenced by logical arguments.
My plan is to retire with 15 years left to pay off my house. I know for sure that I will feel much better having liquid assets in account with conservative expected yield of 5% than in a paid off house( iliquid asset) that would only yield me 3%.
i retired at 55 after 25 yrs in my career but saved/ invested 25-35% for most of those yrs (40 and 45% last 2 yrs but worked less during those years, lay off and shortened work yr when i retired). that retirement year would have been my highest salary ever 300K but i only had 8 months of it before retiring. like your plan i did not consider the 529 and home equity in expense planning. drew 3% per year for the first 2 years due to the early retirement age. this was still more than what we used to live on. also rounded down portfolio to 79K less as my retirement starting assets (just as another safety buffer). i still kept my 2.75% mortgage which had 6 yrs left( now only 3 yrs- hey i get a raise in 3 yrs!). this was only about 16% of my initial monthly draw, now only 11.5% of my adjusted monthly draw. 3rd yr of retirement saw a large jump in expenses(inflation and trips) to 4% of initial retirement assets but would have been 3.7% of assets at onset of 3rd yr retirement due to growth. started 4th yr of retirement a few months ago and increased draw again to 4.4% of intial assets but now only 2.9% of 4th yr starting assets .
a large taxable brokerage is what makes this possible. i am living on taxable only. untouched retirement assets have grown by 34.6% from retirement. i do roth conversions and pay taxes on them but i don't count the tax i have to pay towards my monthly/yearly draw. since i started retirement with my son in high school, you couldn't really take long trips except during his breaks. my son's 529 was 406K( i had put in 10k per yr from 0-13 yrs old and stopped- 140K in all) at onset of retirement. he is now in 3rd yr of college in state and with state scholarship, expenses have been low and last week it had grown to 457K. for the first time i am getting his scholarship for 2024 reimbursed from his 529 ( without 10% penalty but with marginal tax owed). i will put it in his utma which he takes over next yr.
i could replace my highest ever inflation adjusted salary now with the growth in my assets since retirement if i switch to guyton klinger at a still reasonable higher draw rate. i always planned to go on guyton klinger around 60.
the huge difference between me and the guy is his huge remaining mortgage and 3 kids with prep school plans and likely expensive universities. we live in a middle class neighborhood and my mortgage was 275K, less than 1.5 times my salary when i bought the house. my assets did double from 50 to 55 and i suspect he will conservatively have 6.5M excluding the 529 by 55 if he waits.
"When is enough, enough" is a question that many people ask.
I retired last December at 53. Paid off house. 2 in college but 529s are funded to cover them. My investment income is > 2X my expenses.
I agree not to retire from something but to something. I run a non profit and coach high net worth individuals financially.
I wake up earlier than I did when working 9-5 as everyday is exciting not having to answer to anyone.
My advice....start investing now and let time and compounding do its work. I started investing 25% of my income at age 23....after 30 years it grew into millions. Time in the market...not timing the market.
Retired at 53 with a fraction of what this guy has (but a paid off house). I feel a lot richer than folks shackled to their upscale lifestyle. Just the maintenance, taxes, and insurance on the house is ballpark 40-50K, then there is the remaining mortgage.
I have $270K in NVIDIA . I only got into stocks to try and make anything to help afford some medical infusion treatment that I need. I know it’s a risky game especially for someone like me who isn’t focusing hard on the market. I just don't want to make any wrong move. Do I hold or sell and buy back? Genuinely asking for any advice.
I disagree with paying off the low interest mortgage for this particular gentleman. Though, I do agree that it's a good idea to start your retirement unencumbered by monthly housing payments. In today's landscape fewer and fewer can achieve that.
With a 3.4% interest rate, I consider that "free money". By that I mean it can be invested and beat that return, even with a conservative investment strategy. Him being in finance, and with his track record, it should be easily attainable.
On a side note; His full retirement age is 67, or older. However, the smart strategy for him is to make his money last until age 70 before collecting Social Security. So, for that reason and the others that you mentioned, he needs to slug it out in finance for a few more years. Or find a less stressful career, one that affords more home time. (Finance can have brutal hours with a very high stress level. Though, the financial returns are large.)
This rich guy sounds fake to me. The $1.2M mortgage alone would be $142K/year, just interest and principal, to pay off in 10 years. Likely a $3M home would also have some hefty taxes, utilities, maintenance, etc. If the $300K/year is gross income, they likely wouldn't be able to save anything, even if they sat in that house and didn't travel, eat out, vacation, or have any hobbies. The math doesn't work.
Yeah, the math don't work. They'd have around $17k/month take home. $12k/mo toward house and $5k/mo for everything else. Their $175k/yr expenses means they would be living off of only $2500/mo and saving $2500/mo of that $5k/mo take home after house. Sure $2500/mo invested for 25yrs at 8% would get you to near $3m, but doubtful they were making $300k/yr for the past 25yrs. Doubtful that they paid down $1.8m or down payment $1.8m to do a $1.2m 10yr. There were other circumstances and income, because the math don't work.
Dudes 50 I don’t think he bought his house yesterday at a 3% rate you’re talking more like 6k a month for the mortgage 😊
@@Fishfood007It says he owes 1.2M @3.5% with 10 years left. Tell me how that equals 6k/month?
I agree, unless he’s also inherited some money, $300k gross isn’t enough to have built this sort of savings, particularly with the expensive house that has cost 10x his gross salary. The maths doesn’t work as you say.
College, prep and mortgage are the retirement killers in this scenario, but health insurance costs pre Medicare weren’t even mentioned.
I like your assessment.
My take? He's not really rich. His income is decent, yes, but not sufficient for the lifestyle he's living. And if you subtract his liabilities (mortgage balance, future educational expenses, basic cost of raising his children to adulthood, etc.) from his assets (not including house equity), he has less than $2M. That will safely support spending of less than $100K per year, not the $175K he currently claims. So he's not ready to retire, not without reducing his lifestyle. Downsizing to a $1M house might get him there.
I retired at 54, so I'm sympathetic to retiring early and maximizing your "go" years. But, as you said, he needs to be realistic about risk and priorities.
Great content. Thank you so much.
Glad you enjoyed it!
Servicing a $1,200,000 mortgage (plus everything that goes along with that kind of house) on a $300k salary? That's 4x my mortgage, and we are close enough in income levels. I would be hurting and not saving much, and that is with a 2.8% rate.
If i was in his position, make sure my kids understand their share of college funds and that they'll need to figure out what to do if they decide to go out of state. Also, work through their time at school. Never know what kind of expenses could come up and if you want to support them through grad school even a little. Also, cutting expenses to practice what it would be like to retire on whatever withdrawal rate would be smart. Unless he plans on cutting his expenses in half, i dont think he should retire any time soon.
Wish I could talk my wife into downsizing. We are in a 3500 square foot house in So-Cal, don't get me wrong, I love it and love my life, and love the fact that she made 1/2 the money that it took to get us where we are. But what she doesn't realize she needs is a 2000 square foot house (way more than enough) and a 2000 square foot weather-tight storage out-building on the property. I mean if it were up to me, we'd actually get rid of like 80% of the crap we own.
Im retiring this year at 44. I believe most people can retire early if they downsize. Most people spend way more then necessary.
If he sold the $3million house and moved to a place where he can buy a house for $500,000. That would add about $1.5 million to his portfolio and gets rid of the mortgage.
EXCELLENT presentation ! Just as a FYI & real world example ( history) I was in a similar situation / dilemma. The age old question of when is enough, enough and trying to predict the future. Seeing one parent die very young and another at average age as well as being in finance (conservative), didn't help my decision. I elected to keep working but at a much slower pace & make small withdrawals from my brokerage account. Went to all my kids events but missed out on any extended time off. Their college was educations were in UGTMA, so that was covered. I did 100% retire at FRA. The Covid stock market had me concerned but had enough to ride it out. I keep 3 years income in liquidity. Large equity in home as my backup or retirement home. Although who knows what will happen in the next 10-25 years, I now look in the rearview mirror and can say I should have done it sooner. Hindsight is always 20/20. My accounts have risen ~30% higher in that time & now have to look at RMD's. I look at this as a good thing vs being broke though.
I retired at age 61 with 25 times my salary - but I was still a bit worried about everything would work out. I lived rather frugally for a few years, just in case. My money was about 50/50 retirement/after tax, and I didn't take anything from my retirement account.
Tough one. He could downsize his house, but doing so will trigger substantial capital gains tax on his property. His $1.8m equity likely has a lot of capital gains attached to it.
If he wants to keep his current lifestyle and still plans to pay for all of his kids’ education expenses, then definitely do not retire yet. If they are both working, perhaps one can quit or cut back hours to care for their kids. I too agree on the 3% withdrawal rate for super early retirement , and that amount is not enough to fund his current life.
Interesting! If they aggressively paid off the house in the next several years and switched to almost any jobs they enjoyed, even part-time, they could probably make it work. A nest egg of 3.75m at 3% withdrawal (for their young age) would be $112,500. Without the 64k mortgage each year and the part-time jobs, their $ would likely be more than their expenses. Still, paying for college would likely cost more than they have in the 529 for those 3 kids unless it grows over the next several years.
3% withdrawal is much too conservative. They could easily get away with 5% and even if they eat into the capital a bit, it doesn’t really matter as they’re never going to run out.
The top earners probably don’t get as much attention because they likely have money management, and CFP’s already servicing them. Small fries like myself often do not.
My natural response to deal with a desire to retire early is to adjust living expenses. Everything has tradeoffs.
Yeah it has to be a balance because living on the edge financially is stressful and can put a real hurt on when those unexpected expenses come. Imagine being retired and getting your place destroyed or seriously damaged in on of the recent hurricanes and flooding. Your life would be turned upside down without some serious nest egg.
55 would be a far better plan, especially if one or more of the kids will have finished their education by then. I’d also consider completing the first year or two of post HS education at a local community college where the cost of tuition, room and board will be far lower. This would be an even better idea if one or more of the kids is either uncertain of their major or just decides that college is not for them and would prefer to pursue a trade. I also like the fact that he is in finance and loves doing it. A large investment portfolio can be a post retirement sandbox to play in and 5 more years of work isn’t so much a chore for him.
I retired at 65 but continued to work part time in a job that I love. I wanted to cut back not check out. It’s great because I still do very satisfying work but also have the time to spend with my kids and grand kids and get things done around the house. Retirement looks different for everyone. Some people would hate continuing to work but it fits my goals and personal lifestyle very well.
I agree with your assessment of another 5 years. He is doing well and will need something to do. If he is highly motivated I don’t see him quitting working. It may be small but what about SS? Medical? Costs tend to trickle in with kids.
$175k/year in expenses bringing in $300k does not actually allow for a very aggressive savings rate. He has 3 children, that's the problem. And no, he can't retire just yet without selling the house. The issue is you don't just want to keep the lifestyle in early retirement, you get more time and you want to fill it with stuff other than working, so you want to spend more in most cases, not just as much. It is what it is. Retirement math is tough, having more money makes it harder, not easier, as SS basically gives you next to nothing at those numbers, and taxes are higher.
I'd sell the house, and find something I could pay cash for. At 1.8 million dollars, It's pretty fair to say they can find a very nice home they could all fit in quite comfortably. Now without a mortgage, and lower taxes and homeowner's insurance, expenses should be significantly lower. I'd still work for five years focusing on putting that extra money aside about 50/50 in the 529 and the investment account. I'd be hesitant to stop working until all children are done with school, and in the workforce. The fewer people you have to take care of, the less unexpected expenses you will have, and therefore the easier your retirement will be.
Retire at 55 and get access to your current 401k, use the time from now and then to pay extra on the mortgage while at the same time finding expenses to cut. Or maybe he sells the house outright and finds something cheaper that he can pay off quickly.
If he’s happy with his employment then I’d start with working until 55 and reevaluate at that point. But if you’re gearing up for retirement with at least 5 years to prepare and a great starting point should make the outlook a lot rosier. Lifestyle creep is his biggest challenge but that’s not the worst problem to face.
My first thought is that he should continue working to pay off the mortgage. Then wait until the kids are out of the house (this may be a big IF these days). If the kids are out of the house then they may be able to move to a luxurious but still less expensive location/house (i.e. downsize). Don’t wait for the kids to finish university but be realistic about what this is going to cost. Maybe target a 55 year old retirement age.
I retired at 55 with a good pension. I highly recommend retiring at 55 for the healthy time in retirement.
Erin - it’s been a while since you have talked about retiring abroad. Maybe it’s time to revisit this?
You interviewed me several years ago about Thailand.
Another thought: I was in a similar situation although I did not have as much savings. When our children were entering their teenage years they began to build their own lives. They got involved in High school sports, clubs and other activities. In High school they both got part time jobs. If I had retired at that time I would have actually seen less of them. I ended up taking on a hobby to occupy my spare time (ironman triathlons). I also did some volunteer work. Yes it is great spending time with our children but they will begin to build their own lives at an early age. My first suggestion would be that this person look at how he is spending his spare time and look to find a satisfying hobby or activity. Maybe volunteer work that he can share with his family.
I see that the top 1% income earner with the top 1% net worth comes with the top 1% expenses. Wow!!!! I can't imagine.... Thanks for the clip.
Couple ideas...reduce expenses and then look at retiring at 55. In doing that he will be well on his way of having enough. He is definitely in a great spot and in like the top 2% of Americans with networth
I retired at 51 and I liked what I did but that came with a restriction that my hobby projects would all be encumbered, and the company had evolved from engineering driven to a typical big company bureaucracy. Two financial advisors came to the same conclusion that I no longer needed the income to sustain my current lifestyle to their end of life estimates, so rather than keep working I decided it was time to retire and focus on personal projects, some of which could be profitable, but none of which need to be. My experience with my grandfather dying at 62 and my father at 76 tells me I should take the time I can when I can because tomorrow existing for me is not a certainty. Maybe one day I'll even be making a click bait video about quitting work to focus on TH-cam with zero subscribers.
Makes me feel pretty good. We have more and have less debt and less spending. I can't wait to downsize and get the last kid off the college payroll. 2 more years!
There is at least 2 ways to tap his 401K before 59.5 without a penalty that I am 90% sure is possible. 1 He could go the route of substantially equal distributions based on his life expectancy. 2 he could work until 55 and take withdrawals penalty free known as the rule of 55. And a 3rd way which I don't recommend is Total Disability which is how I got my SSDI and penalty free access to my Simple IRA. But I assumed that he is healthy. The rule of 55 means he couldn't quit at 50 but he could at 55 penalty free.
Love your channel! Thank you.
Did I miss any mention of inheritance? Both sides of it matters, if they might receive a large inheritance from their parents, or if they want to leave generational wealth to their children.
I'm glad we didn't get talked into a 529 plan. We only had one child so it was more of an all or nothing risk, he ended up going to a public university that cost less than $5k/year and dropped out in the second year during the pandemic. I had paid off the house before he graduated college so had more than enough extra cash flow to cover all college costs (including $10k for the dorm the first year). Would still be kicking myself if I had $100k sitting in a 529 that I had no access too while hoping for a grandchild.
There is a presumption in the original question, rather antiquated, that being in the workforce is either an "on" or "off" proposition. "Retirement" per se shouldn't even be a question for an individual like this one who has a track record of achievement. You don't just turn off this drive when you quit a 9 - 5. My brother is the poster child for this, "retired" at 45 when he sold his business, drove his family crazy, and is now back in the workforce as a means to occupy his time.
While this individual is in his peak expense years, he is also in his peak earning power years. But that can also mean peak earnings on a part time or contextual basis. If he had a "side hustle" while nominally retired from a 9 - 5, he could have some inbound household income that could defray expenses until a more classic retirement age. If his career was that good in finance, that could mean contributing to a family office (private hedge fund), getting involved in a start up, or switching to corporate governance as a paid board member. Such a strategy would also give him an opportunity to actively manage his own funds, oriented towards growth and not income.
Hi Erin, I agree with your analysis. I also agee with your preliminary statement about being grateful. Now I am no longer able to consider "early retirement", as I post social security age, and and although I have substantially more than this person. I dont understand a few things. First, why do people not consider this question from a "burn rate" perspective first. In other words, the question I would have firto him, is while you know what you are spending now, how much could you reduce that . Also, what is his plan, almost certainley he will do "something" where he can earn money. Once he can determine the "burn rate" and the post "retirement " acttive income, he could a "retirement / montecarlo" analysis and see the probability and at what groth rate his portfolio could handle. THe other question, and I dont quite understand, is why give up on a successful career. I know when I was working, I emjoyed many aspects of the work. I have to beleive with his salary he gets some "perks" that I bet he will miss too.
I'd stick with 4% distributions since that's already a conservative number. I imagine in 4 to 10 years, the 529 plan could be close to reaching $460k. But yeah, with a big family, retiring at 50 with his assets/liabilities sounds a bit early.
I am absolutely ageist parents paying for their kids collage.
If you tell the kids hey collage is on me the kids will be "Hey 8+ years of party time!!!"
If you tell the kids hey that's on you, you better not screw this up as I wont bail you out if you mess it up. The kids will first decide if collage is actually for them or maybe a triad school instead. Now you could split the difference and say OK triad school cost X so I will give you X to pay for extended schooling to start a career.
As someone who had parents not in a financial situation to pay for college and needing to put all of it on loans, I can't imagine it. Seems insane to pay $100,000's per kid. Not sure I want to have kids, but at best I'd think of chipping in some not paying in full. They need skin in the game for their own future.
I thought to myself '55' at the 1:55 mark before anything else was said or discussed. I pulled the plug at 59.
I think planning to retire early makes sense if you can make the numbers work. I went part time at 56 and just retired full time at 59 when I could live comfortably off 4% of my investments. Paying for 15 years of health insurance for 5 people could cost 600k plus. If I was in his shoes, I would target 60 years old with no debt and 4 million in investments.
Health insurance is expensive, but I don't think it will be quite that high. Maybe $450k max.
It's possible, maybe even likely, that the man's 401(k) would be accessible without penalty at the age of 55 or up to 1 year before, depending on the exact date he was born, due to the "Rule of 55".
I was thinking the same thing. I'm 54 and counting on that in a year or two.
It would also be good to know if this 401k includes the clause that he can withdraw funds at the age of 55 with no penalties if he were to separate from service after age 55.
This guy reminds me of the Financial Samurai. Sam Dogen was doing Fat (more like Obese) FIRE but now has to return to work because his lifestyle inflation is so extreme. This guy could fall into the same trap if he tries to retire early. He either needs to keep working to have enough money for the things he wants to do (fund multiple 529s, private schools, etc.) or drastically deflate his lifestyle and goals (sell the $3M house, send his kids to public school, etc.) so that he can retire early. I think your plan of really focusing on funding 529s, paying off the mortgage, etc. and re-accessing the situation in 5 years is spot-on.
If their kids are smart they don't need expensive prep school and fancy ivy league colleges to be successful. They can start taking college credits in high school and graduate early. The savings can be used to help the kids with a down payment on a house instead of them being $100,000k in debt
Sell the house and move to an area you can have a modest $500k house and retire now
Can a 56 years old with 31 years of working days in the US start claiming SSA? I was medically retired from the military.
I agree with downsizing. The only caveat would be if you live in a place like Cali (where I live) and you’re grandfathered into lower property taxes based on the purchase price of your home. I bought my house from a guy for double what he paid for it 5 years before. In the last 7 years since I bought it, the price has doubled again. He paid $2,500/year in property tax, I pay $5k/year. I couldn’t afford to buy this place today with the $10k/year property tax bill it’d have due to the price doubling since I bought it. So this is likely our forever home.
That question of what you'd actually be doing in retirement is pretty important.
Yes, and this is super easy to be unrealistic about. What you'd do if you didn't have work on Monday is a totally different mentality from what you'd do if you never had to work at all. I don't know of a great way to simulate this without actually doing it.
@@caustinolino3687 It wouldn't be perfect but if you could take maybe 3wks off work without having set plans ahead of time, that'd probably give a good idea.
I won’t retire until my last child is out of college and my mortgage is paid off. 5 to six years for mortgage. Depending on my youngest child’s path, could be 5 or 6 years. It’s important for me to get kids self sufficient and out of school with no loans. Already have 2 through, working on the last one.
I hate to throw cold water on this, but we made 299,xxx last year, so 300k. Taxes and withholdings knock that to 161k or $13,500/ month. And this guy has a 12k/month mortgage and managed to save $3.75m in brokerage and $700k 401k and $250k 529? Am I missing something here?
The 300k could be net but you brought up a good point in factoring in taxes.
Should put it in software and see what happens. I think he should work at least 5 more years. That mortgage is pretty big suggesting issues
If you are a high earner, you likely can work enough to maintain contacts, have some passive income, and if you want to return back to working, you can. Take a few years off, work a bit when you want, and go from there.
Paying for kids in prep school, and a three million dollar house tells me this gentleman likes to spend money. The 175K annual expenses is low. He is going to be spending much more than that. Without making some changes he definitely needs to continue earning income for a while longer unless he makes some spending changes. Yes, kids are really expensive.
Have you ever talked about retirement abroad? I might want to move to Mexico if there was a way to keep my Vanguard, Fidelity, and TSP accounts. Is there a way? I read on Bogleheads, that Vanguard would actually close people's accounts if they found out they were no longer U.S. residents (even if they remained U.S. citizens).
Don't simply retire from something; have something to retire to. Start saving, keep saving, and stick to investments
It’s really heartbreaking to see how inflation and recession impact low-income families. The cost of living keeps rising, and many struggle just to meet basic needs, let alone save or invest. It’s a reminder of the importance of finding ways to create financial opportunities. You've helped me a lot sir Brian! Imagine i invested $50,000 and received $190,500 after 14 days
Absolutely! Profits are possible, especially now, but complex transactions should be handled by experienced market professionals.
Finding yourself a good broker is as same as finding a good wife, which you go less stress, you get just enough with so much little effort at things
Brian demonstrates an excellent understanding of market trends, making well informed decisions that leads to consistent profit
I'm surprised that you just mentioned and recommend Mr Brian Nelson. I met him at a conference in 2018 and we have been working together ever since.
In the words of Toby Keith “I wanna talk about me” ❤
😂😂😂 Literally made me laugh out loud!
Huh. I am close to the 'rich guy' retirement I guess. Downsized at 48. I have a wife and 2 young kids (10,12). Following assets -
$2.4 million in post-tax savings
$100k in emergency fund
$850k in 401k/IRA
$900k home fully paid for
We use our post-tax account for current income using a dividend strategy which yields 7%. We use our 401k for long term investments into VOO, QQQ, etc.
We live off of $160k per year and expect when we get to 60, the 401k will be worth about $1.2M.