After five years of early retirement, I realized I made a serious mistake that cost me $500,000+. Let me tell you what happened so you don’t do the same.
When I left Corporate America at the age of 34, I thought I was done earning more money for good. Below is the income budget I put together in 2012 to support us for the rest of our lives. Expenses are not listed because we’ve never spent more than we’ve made.
Our base case retirement income scenario was to make $78,000 gross or $54,600 net a year in passive income and live a simple life back in Hawaii for the rest of our lives. If things went really well in the stock and real estate markets, we calculated an optimistic annual passive income scenario of $117,600 gross and $94,080 net.
At the time, we were probably spending about $100,000 a year to live in high cost San Francisco. By moving to a paid off house in Honolulu, we’d have no problem living within our means with a child on a much lower income.
But if we did have a problem living on less or wanted to live it up more, we had fallback options through Active Income and Bonus Income. These were also divided into Base Case and Blue Sky with $15,000/month and $50,000+/month gross totals, respectively. It’s always fun to dream about what could be.
If you’re wondering about the line items in the Bonus Income column, those are all the things I already had, but didn’t count on to make anything extra. For example, my Rich Hot Spouse was there to provide the love she has always provided. Anything more and I classified it as utopia. Aww.
Today, more than five years later, we still live in San Francisco and I’ve done all the things listed in the Active Income chart. Although my income grew in retirement, I did NOT change my investment risk profile. This was a major mistake because a major bull market ensued.