What risks do you take to retire early?

[jIM_Ohio]

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.

[disneysteve]

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.

[jIM_Ohio]

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.

[scfr]

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.

[jIM_Ohio]

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).

[Fern]

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.

[kv968]

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.

[disneysteve]

Originally Posted by jIM_Ohio

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.

[Daylily]

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.

[Scanner]

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.

[humandraydel]

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

[disneysteve]

Originally Posted by humandraydel

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.

[LivingAlmostLarge]

That's my main concern medical until medicare kicks in if we retire early.

[jIM_Ohio]

Originally Posted by disneysteve

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.

[disneysteve]

Originally Posted by jIM_Ohio

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.

[jIM_Ohio]

Originally Posted by humandraydel

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.

[Fern]

Originally Posted by kv968

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.

[Fern]

Originally Posted by Scanner

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.

[disneysteve]

Originally Posted by jIM_Ohio

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.

[humandraydel]

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.