"It is preoccupation with possessions, more than anything else, that prevents us from living freely and nobly." - Bertrand Russell
logo

Go Back   Saving Advice > Financial Chit Chat > Personal Finance

Personal Finance Credit cards, home loans, retirement plans and taxes. The place for all your personal finance questions.

Reply
 
LinkBack Thread Tools
  #1 (permalink)  
Old 04-02-2007, 07:59 AM
jIM_Ohio's Avatar
jIM_Ohio jIM_Ohio is offline
$ Saving Professor
 
Join Date: Feb 2007
Location: Milford, OH
Posts: 5,388
Last Blog Entry: Career change
Points: 27923.63
Donate
Default What risks do you take to retire early?

I am looking over "retirement checkpoints", as most indications are that at age 34, I have set aside enough to replace 125% of my current income by age 68.

My next step is to retire earlier. Other than "continue to save 16%" for retirement, any other comments on what can be done to financially prepare for early retirement?

For example, I can conservatively estimate NOT paying off my 1st mortgage and investing the difference will yield at least 40k more.

In 30 years I will have a paid for house (365k) and 187k in a taxable account vs a paid off 1st and 2nd mortgage (365k) and 140k in a taxable account if I pay off mortgage early and don't invest until mortgage is paid off (in a taxable account).

Another example is I am 100% in equities, even though a 9% return (80%-20%) on current 401k/IRA assets help me reach the age 68 milestone which is my "worst case" scenario.

I am trying to think of other ways to retire early... my wife tends to "resist" increasing the 16% we save right now, so looking for other ways to make sure there are assets I can use to "spend in early retirement".

My early retirement might be spent working another job which pays much less, but doing the whole corporate thing for another 30+ years is not appealing to me.
__________________
  • General questions get general responses. Specific questions get better responses. Want a better answer? Re-read my signature LOL

Last edited by jIM_Ohio : 04-02-2007 at 10:21 AM.
Reply With Quote
  #2 (permalink)  
Old 04-02-2007, 10:13 AM
disneysteve's Avatar
disneysteve disneysteve is online now
$ Saving Guru
 
Join Date: Jun 2006
Location: New Jersey
Posts: 16,312
Last Blog Entry: March 2012 Survey Income
Points: 99416.30
Donate
Default

Most asset allocation models show that by adding bonds to your portfolio, you significantly reduce risk without significantly lowering average return. A 100% stock allocation is much riskier, for example, than an 80/20 allocation, but both will see similar returns over time.

The single biggest factor in retiring early is the cost of healthcare. Retire before age 65 when you qualify for Medicare and you are 100% on your own, so be sure to figure out how you will pay for that.

Remember that the earlier you retire, the longer your nest egg needs to last, so the bigger it needs to be. Though if you anticipate continuing to work at least part time, that's not as much of an issue. Money magazine's cover story this month is on early retirement. They have a table showing what % of income you need to have saved by a certain age if you want to retire early. They break it down for people with and without pensions and people who will or won't work part time in retirement. I'm 42 and I'm a little behind based on their age 45 figure, but hopefully by the time I'm 45, I'll be on track.
__________________
Steve

* Despite the high cost of living, it remains very popular.
* Why should I pay for my daughter's education when she already knows everything?
* There are no shortcuts to anywhere worth going.
Reply With Quote
  #3 (permalink)  
Old 04-02-2007, 10:28 AM
jIM_Ohio's Avatar
jIM_Ohio jIM_Ohio is offline
$ Saving Professor
 
Join Date: Feb 2007
Location: Milford, OH
Posts: 5,388
Last Blog Entry: Career change
Points: 27923.63
Donate
Default

The 80-20 lowers volatility, I think volatility for myself will be lower because I have my 100% equities across many asset classes. But check with me again after next bear (I was still learning 2000-2002 and couldn't tell you how much I lost).

Even a .5% overall difference per year 100% vs 80%-20% makes a difference, IMO over 15 years.
__________________
  • General questions get general responses. Specific questions get better responses. Want a better answer? Re-read my signature LOL
Reply With Quote
  #4 (permalink)  
Old 04-02-2007, 12:09 PM
scfr scfr is offline
$ Saving College Junior
 
Join Date: Sep 2006
Posts: 1,165
Last Blog Entry: Stepping Away
Points: 8053.00
Donate
Default

Ummm ... Maybe this is not what you are asking but I think the most obvious answer if you're looking for high risk / potential high reward leading to the possibility of early retirement is to quit the corporate job and start your own business. Certainly I'm not suggesting that you give your 2-weeks notice today; it's something you need to start planning and preparing for up to a couple years in advance.
Reply With Quote
  #5 (permalink)  
Old 04-02-2007, 12:19 PM
jIM_Ohio's Avatar
jIM_Ohio jIM_Ohio is offline
$ Saving Professor
 
Join Date: Feb 2007
Location: Milford, OH
Posts: 5,388
Last Blog Entry: Career change
Points: 27923.63
Donate
Default

as I read my original post, it may not be clear...

Outside of normal investing (and increasing savings rate), what can be done to take more risks for retiring early?

The healthcare issue was a good one.
Starting a new business might be what allows early retirement, it could also be what prevents early retirement. More than likely I would retire at 45-55, then start a new business, for example (less risk in that case, IMO).
__________________
  • General questions get general responses. Specific questions get better responses. Want a better answer? Re-read my signature LOL
Reply With Quote
  #6 (permalink)  
Old 04-02-2007, 12:59 PM
Fern's Avatar
Fern Fern is offline
$ Saving College Junior
 
Join Date: May 2005
Posts: 1,415
Last Blog Entry: Calculating the Savings in Growing Your Own Food
Points: 30827.10
Donate
Default

Most people also forget that the age at which you can collect Social Security will increase, so if you're still in your 30s now, that age is no longer 65, it's 66 or 67.
Reply With Quote
  #7 (permalink)  
Old 04-02-2007, 01:27 PM
kv968's Avatar
kv968 kv968 is offline
$ Saving College Junior
 
Join Date: Nov 2006
Location: New Jersey
Posts: 1,161
Points: 16597.40
Donate
Default

You could always sell your house at retirement, move into a cheaper place and invest the proceeds. That is if you'd want to sell your house and the market at the time makes it worth-while.
__________________
The easiest thing of all is to deceive one's self; for what a man wishes, he generally believes to be true.
- Demosthenes
Reply With Quote
  #8 (permalink)  
Old 04-02-2007, 01:27 PM
disneysteve's Avatar
disneysteve disneysteve is online now
$ Saving Guru
 
Join Date: Jun 2006
Location: New Jersey
Posts: 16,312
Last Blog Entry: March 2012 Survey Income
Points: 99416.30
Donate
Default

Quote:
Originally Posted by jIM_Ohio View Post
More than likely I would retire at 45-55, then start a new business
I know we keep hearing about how retirement is changing and boomers are redefining retirement, but I don't buy it.

If you work at one job from age 25-50 and then get a new job or start a new business from 50-65, you never retired. You simply changed jobs, perhaps changed careers. Or maybe you cut back by reducing your work hours. It still doesn't qualify as retired in my opinion. To me, retired means you no longer NEED to work. That doesn't mean you won't work if you find something you really enjoy or find you need something to occupy your time, but if you are working because you need the money, then you are not retired.
__________________
Steve

* Despite the high cost of living, it remains very popular.
* Why should I pay for my daughter's education when she already knows everything?
* There are no shortcuts to anywhere worth going.
Reply With Quote
  #9 (permalink)  
Old 04-02-2007, 03:33 PM
Daylily Daylily is offline
$ Saving Jr. College Student
 
Join Date: Nov 2006
Location: Midwest USA
Posts: 402
Last Blog Entry: I've been gone for two-plus years
Points: 2619.50
Donate
Default

I'm with you DisneySteve. In that Money magazine article they profiled the guy in his 40s that had retired but just found out his wife is pregnant and he may have to go back to work.
You're not really retired if you have to go back to work. That guy might be on a couple year break, but he is not retired.
Reply With Quote
  #10 (permalink)  
Old 04-02-2007, 04:12 PM
Scanner Scanner is offline
$ Saving Post Graduate
 
Join Date: Feb 2007
Posts: 2,679
Points: 15988.60
Donate
Default

And as Steve dutifully mentions. . .the million dollar question . . .

What about health care?

If you retire when you are 45, can you really afford a $12,000/year premium for a basic insurance policy for a married couple?

Maybe. . .maybe not. That's a 1000 smackeroos per month, more than many mortgages and there's no building equity in that policy. Just money put out every month.

These individual plans are constructed very screwballish - many exclusions - have a bad back? Not paying for that. Have diabetes? That's excluded.

YOu almost have to work to get group coverage until Medicare takes over.

Of course, if the Presidency goes Democratic. . .we may be looking at National Healthcare. . .all bets are off then.
Reply With Quote
  #11 (permalink)  
Old 04-02-2007, 05:32 PM
humandraydel humandraydel is offline
$ Saving College Freshman
 
Join Date: Aug 2006
Posts: 515
Points: 3120.00
Donate
Default

Well, to be honest, saving 16% of your income really isn't that much. I suggest you find a way to save more if at all possible.

Aside from that the only way to increase your return is to take on more risk. Some people suggest cashing out the home equity to use for investing. As you know, over many years the few % difference between investment returns and interest paid will compound into a good amount. Is this worth the risk? Only you can decide.

There's another forum I read that you might be interested in: Early Retirement Forum - Index
Reply With Quote
  #12 (permalink)  
Old 04-02-2007, 07:26 PM
disneysteve's Avatar
disneysteve disneysteve is online now
$ Saving Guru
 
Join Date: Jun 2006
Location: New Jersey
Posts: 16,312
Last Blog Entry: March 2012 Survey Income
Points: 99416.30
Donate
Default

Quote:
Originally Posted by humandraydel View Post
There's another forum I read that you might be interested in: Early Retirement Forum - Index
There's also this one: http://forums.kiplinger.com/forumdisplay.php?f=74

It isn't strictly about early retirement, but many of the threads are on that topic.
__________________
Steve

* Despite the high cost of living, it remains very popular.
* Why should I pay for my daughter's education when she already knows everything?
* There are no shortcuts to anywhere worth going.
Reply With Quote
  #13 (permalink)  
Old 04-02-2007, 07:49 PM
LivingAlmostLarge LivingAlmostLarge is offline
$ Saving Post Graduate
 
Join Date: Nov 2006
Posts: 3,230
Points: 21041.50
Donate
Default

That's my main concern medical until medicare kicks in if we retire early.
__________________
LivingAlmostLarge Blog
Reply With Quote
  #14 (permalink)  
Old 04-03-2007, 06:46 AM
jIM_Ohio's Avatar
jIM_Ohio jIM_Ohio is offline
$ Saving Professor
 
Join Date: Feb 2007
Location: Milford, OH
Posts: 5,388
Last Blog Entry: Career change
Points: 27923.63
Donate
Default

Quote:
Originally Posted by disneysteve View Post
I know we keep hearing about how retirement is changing and boomers are redefining retirement, but I don't buy it.

If you work at one job from age 25-50 and then get a new job or start a new business from 50-65, you never retired. You simply changed jobs, perhaps changed careers. Or maybe you cut back by reducing your work hours. It still doesn't qualify as retired in my opinion. To me, retired means you no longer NEED to work. That doesn't mean you won't work if you find something you really enjoy or find you need something to occupy your time, but if you are working because you need the money, then you are not retired.
When I don't need an income I'll retire.

I have thought about 5-7 different businesses I might take a stab at, but more than likely these would be hobbies which generate income more than a real job.

For example I train soccer teams on the side now, that nets me around 5-9k per year. If I started my own club and dedicated myself to it (as a hobby), I could clear around 15k.

I'd plan to live off what I saved, but the extra income always helps (vacations are better). Right now I bank 75% of soccer earnings and spend 25% (on vacations)... don't need the money, keeps me busy...

I have about 3-6 other ideas similar to this I'd like to explore once I don't need the income.
__________________
  • General questions get general responses. Specific questions get better responses. Want a better answer? Re-read my signature LOL
Reply With Quote
  #15 (permalink)  
Old 04-03-2007, 07:07 AM
disneysteve's Avatar
disneysteve disneysteve is online now
$ Saving Guru
 
Join Date: Jun 2006
Location: New Jersey
Posts: 16,312
Last Blog Entry: March 2012 Survey Income
Points: 99416.30
Donate
Default

Quote:
Originally Posted by jIM_Ohio View Post
When I don't need an income I'll retire.

I have thought about 5-7 different businesses I might take a stab at, but more than likely these would be hobbies which generate income more than a real job.

I'd plan to live off what I saved, but the extra income always helps.
Sounds good to me. I just wasn't sure that you are I were defining retirement the same way.
__________________
Steve

* Despite the high cost of living, it remains very popular.
* Why should I pay for my daughter's education when she already knows everything?
* There are no shortcuts to anywhere worth going.
Reply With Quote
  #16 (permalink)  
Old 04-03-2007, 07:15 AM
jIM_Ohio's Avatar
jIM_Ohio jIM_Ohio is offline
$ Saving Professor
 
Join Date: Feb 2007
Location: Milford, OH
Posts: 5,388
Last Blog Entry: Career change
Points: 27923.63
Donate
Default

Quote:
Originally Posted by humandraydel View Post
Well, to be honest, saving 16% of your income really isn't that much. I suggest you find a way to save more if at all possible.

Aside from that the only way to increase your return is to take on more risk. Some people suggest cashing out the home equity to use for investing. As you know, over many years the few % difference between investment returns and interest paid will compound into a good amount. Is this worth the risk? Only you can decide.

There's another forum I read that you might be interested in: Early Retirement Forum - Index
That forum looks good- just registered.

I think a 16% savings rate is more than acceptable- more is better, but I am not living to save.
__________________
  • General questions get general responses. Specific questions get better responses. Want a better answer? Re-read my signature LOL
Reply With Quote
  #17 (permalink)  
Old 04-03-2007, 07:56 AM
Fern's Avatar
Fern Fern is offline
$ Saving College Junior
 
Join Date: May 2005
Posts: 1,415
Last Blog Entry: Calculating the Savings in Growing Your Own Food
Points: 30827.10
Donate
Default

Quote:
Originally Posted by kv968 View Post
You could always sell your house at retirement, move into a cheaper place and invest the proceeds. That is if you'd want to sell your house and the market at the time makes it worth-while.
actually the nice thing about doing this is that you don't have to worry about where the housing market is when you sell your house, since you're 'downsizing' into a more modest home and should see savings whether it's a buyer's or seller's market.
Reply With Quote
  #18 (permalink)  
Old 04-03-2007, 07:58 AM
Fern's Avatar
Fern Fern is offline
$ Saving College Junior
 
Join Date: May 2005
Posts: 1,415
Last Blog Entry: Calculating the Savings in Growing Your Own Food
Points: 30827.10
Donate
Default

Quote:
Originally Posted by Scanner View Post

YOu almost have to work to get group coverage until Medicare takes over.

.
Yeah, i figured this out a while ago and decided that if i can't afford to retire early becus of the cost of healthcare, especially when you have a chronic pre-existing condition, then i will work part-time at one of the very few companies that offers health insurance to part-time employees.

Some of these include: Starbucks and Costco.
Reply With Quote
  #19 (permalink)  
Old 04-03-2007, 11:34 AM
disneysteve's Avatar
disneysteve disneysteve is online now
$ Saving Guru
 
Join Date: Jun 2006
Location: New Jersey
Posts: 16,312
Last Blog Entry: March 2012 Survey Income
Points: 99416.30
Donate
Default

Quote:
Originally Posted by jIM_Ohio View Post
I think a 16% savings rate is more than acceptable- more is better, but I am not living to save.
I agree that 16% for retirement is very good if you started saving at that rate at a young age. Of course, if someone is in their late 30s or 40s and just starting to get serious about retirement planning, 16% woudn't be enough to even consider early retirement.
__________________
Steve

* Despite the high cost of living, it remains very popular.
* Why should I pay for my daughter's education when she already knows everything?
* There are no shortcuts to anywhere worth going.
Reply With Quote
  #20 (permalink)  
Old 04-03-2007, 05:01 PM
humandraydel humandraydel is offline
$ Saving College Freshman
 
Join Date: Aug 2006
Posts: 515
Points: 3120.00
Donate
Default

Jim - to be fair, 16% savings rate is GREAT. But to ensure (significantly) early retirement, it may take more than 16% - that's all I meant.
Reply With Quote
Reply



Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

vB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are On
Pingbacks are On
Refbacks are Off



Powered by vBulletin®
Copyright ©2000 - 2012, Jelsoft Enterprises Ltd.
SEO by vBSEO 3.0.0 RC6 © 2006, Crawlability, Inc.

Copyright © 2012 SavingAdvice.com. All Rights Reserved.