As more people look to retire early (<60), more people are looking for shortcuts in order to get to early retirement quicker.
It’s understandable that in this day and age of instant gratification, young folks nowadays aren’t willing to grind it out for decades like previous generations.
Instead of building a large enough passive income portfolio to cover a comfortable lifestyle, I’ve noticed more people are willing to retire early to live in or near poverty!
I can empathize.
When I was 25, the 9/11 terrorist attack happened. This terrible event ignited my quarter-life crisis. I seriously thought about retiring with ~$400,000 due to some lucky investments and moving to Hawaii to become a fruit farmer on my grandparents’ under-maintained farm.
In exchange for clearing brush, watering trees, and doing general upkeep on the house, I could live for free and make some extra income selling mangos, papayas, and pomelos down the street. The farm was only about eight acres in Waianae, a rougher part of town.
Then I slapped myself silly and told myself to buck up. Throwing away a perfectly good career in finance so young was incredibly stupid. So I gutted it out for another 10 years until my investments could generate about $80,000 a year and cover my desired living expenses in San Francisco.
Defining Poverty By Household Size
Back in 2001, my $400,000 could have generated about $20,000 – $24,000 a year in risk-free income. If I sold $10,000 worth of mangos a year, I could have led a relatively comfortable life in Hawaii given I didn’t have dependents or rent to pay.
Although having a nice tan and washboard abs would be nice due to surfing every day, I wanted more. I wanted to one day to take care of my girlfriend and maybe even start a family.
Today, that $400,000 would only generate about $8,000 – $9,000 a year risk-free given the 10-year bond yield has fallen from 5.5% down to ~2%. Therefore, there’s no way $400,000 is nearly enough for a single person to live on today unless they want to live in a cave or move to a developing country.
Let’s look at the official Federal Poverty Level (FPL) in the chart below. The baseline federal poverty level is under the 100% column.
If you make $12,140 or less as a single person, you are living in poverty in America. If your family of four makes $25,100 a year or less, your family is also living in poverty.
The federal government provides healthcare subsidies for households who make up to 400% of the baseline federal poverty level. In other words, if you make 400% or less of the baseline federal poverty level, you are considered poor enough to receive federal assistance.
The household income levels between 300% to 400% of FPL seem comfortable as long as the household doesn’t live in an expensive coastal city like New York or Los Angeles.
For example, I have to imagine a couple with two kids making between $75,300 and $100,400 is going to be able to live a decent lifestyle in the heartland of America where I’ve been investing in real estate.
Just recently, the University of Texas, Austin announced families earning less than $65,000 would not have to pay tuition starting in 2020. Meanwhile, families making up to $125,000 would also receive some type of tuition subsidy. Hooray! Let’s hope this trend spreads across the country.
However, I’m not here to argue which household income levels should receive extra assistance from the government. The government, with all its data and wisdom, is the decider of who is poor and who needs help.
I’m here to highlight how big of a retirement portfolio you need to retire early in order to live in or near poverty, which the government and I define as between 100% – 200% of FPL.
Any household income under 200% of FPL seems really tight, no matter where you live in America. I’m confident all of you agree.
How Much You Need To Retire To Live In Poverty
Below is a chart I put together that shows how big of an after-tax retirement portfolio you need by household size and percentage return if your household income is 100% and 200% of FPL.
In order to retire early and live on a household income equal to 200% of FPL and a conservative 2% rate of return or withdrawal rate, you will need to amass $1,214,000 as an individual and up to $3,374,000 for a household of six.
If you are OK with living in abject poverty (100% of FPL) and expect a conservative 2% rate of return or withdrawal rate, then you will only need to amass $607,000 as an individual and up to $1,687,000 for a household of six.
If a couple wants to have two children and earn up to 200% of FPL in early retirement, they need to amass between $1,004,000 to $2,510,000 in their after-tax portfolio based on a 5% to 2% withdrawal rate and so forth.
Given the 10-year bond yield is at ~2%, I wouldn’t withdraw or expect a return of more than 4% from your after-tax retirement portfolio if you want to stay retired. A 3% withdrawal rate or expected rate of return is a more responsible percentage.
Personally, I like to match my withdrawal rate to the risk-free rate of return so I never run out of money. Once you achieve financial independence, you never want to go back to the salt mines.
As an early retiree, you best hope interest rates don’t go down much further. Otherwise, most households will need multi-million dollar portfolios, not just million dollar portfolios, in order to retire early and live in or near poverty.
Is It Worth Living In Poverty To Retire Early?
For the first 13 years of my life, I grew up in emerging countries like Zambia and Malaysia where I was surrounded by poverty. Some of my best friends in Kuala Lumpur would share one room and a bathroom with three other family members.
Seeing so much poverty for so many years made me focus on school because I was afraid of becoming poor. When I came to America in 1991, I decided not to take my good fortune for granted.
Even though money doesn’t buy happiness, money has to at least cover all our basic living expenses before we can really believe in such an ideology. I personally would not be willing to retire early if I had to live in or near poverty.
Although my work was stressful, it enabled my wife and me to own a comfortable home in San Francisco, take 5-6 weeks of vacation a year, drive a safe vehicle, and raise a family.
For the now three of us to live off only $41,560 a year (200% of FPL) would require us to leave San Francisco and start living with my parents in Hawaii to save on rent. Although plenty of readers have stated they have no problem living at home with their parents as adults, we do.
Our parents value their privacy. We’re all set in our ways. Living together for an extended period of time would be difficult.
One alternative to living a more comfortable early retirement is having a higher withdrawal rate. But this is very difficult to do for us because we’ve been in the habit of aggressively saving and investing for so many years.
The other alternative, which is what I think most early retirees do nowadays is freelance or take on odd jobs to make up for the earnings shortfall. Where things can get hairy is when the early retiree spends endless hours trying to make extra income because their investment portfolios are too small.
They’ve essentially traded one job for another.
Although we’ve lived entirely off our investments since 2012, I’ve been accused of not really being an early retiree because of the size of Financial Samurai. That’s totally understandable, which is why since 2013, I haven’t told anybody in real life that I’m an early retiree. I just tell them that I’m a writer or a high school tennis coach.
But isn’t it funny that if Financial Samurai was much smaller, I’d get more approval from the Internet Retirement Police? The lesson is to never stick out because a hammer will try to bang you down. In real life, you should be as stealth wealth as possible.
Here’s what I think our budget would look like if our household of three lived off 200% of FPL in early retirement. There is no way we could only live off $20,780, or 100% of FPL.
Looking at this 200% of FPL budget makes me a little angry because I want better for my wife and son. I’d like at least a two bedroom apartment, which would cost us closer to $3,000/month for an apartment 45 minutes away from downtown SF. I’d also want to spend about $500/month more for food, $50/month more on my son, and $100/month more on travel.
The major action step to take before deciding to retire with only $41,560 a year in investment income is to completely pay off a property to reduce living expenses. Owning estate really is your best friend in this near poverty retirement living scenario.
After going through this exercise, I’ve concluded that my family of three would need to earn at least 300% of FPL ($62,340) in early retirement to feel reasonably comfortable. At a 3% safe withdrawal rate, we’d, therefore, need a portfolio of at least $2,078,000.
Be Patient With Early Retirement
Instead of rushing to retire as soon as possible, go through the numbers and see if everything makes sense. To give up a well-paying job in a bull market to live like a pauper is probably not ideal.
One of my early retirement regrets is retiring too soon. I would have been financially better off if I had accumulated several more years of income. It’s only after you’ve permanently left the workforce for a while that you realize how truly long post-work life is.
For those people willing to live in or near poverty to retire early, I say more power to you. Living a simple life without much desire or possessions is the key to enlightenment according to the Buddha. Just know that there’s a chance your expenses will increase as you age. Worst case, you can always just go back to work.
The math really doesn’t lie, no matter how our emotions make us feel. If you can survive off poverty wages until Social Security kicks in, you’re golden! At the end of the day, it’s up to each of you to figure out what works best for you and your family.
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Readers, would you be willing to retire early to live in or near poverty? Why or why not? What is the lowest FPL level you’d be willing to accept to retire early? How much money are you trying to accumulate to retire early? Do you think young folks retiring with the amounts in my chart are making a mistake?
Don’t mean to brag, but I live in a simple12x12 “cabina” in Central America by a jungle creek with a queen size bed, hot plate, refrigerator/freezer, microwave, flat screen tv, cable, WiFi, a fan, I have a sweet little swimming pool to cool off in and view the sun setting over the ocean any time I want, I’ve got a mountain bike I can hop on to go to one of THE most beautiful beaches in the country anytime I want, I can use the bus, Uber or taxis when I want, I can get fresh pineapples for a buck and change, coconuts (LOVE coconut water for a recovery drink after a good bike ride) for about fifty cents, avocado for around the same, I get to see and hear parrots and all kind of cool jungle birds every day, the only I have to do when I wake up in the morning, is decide what I want to do that day, and I’m doing it on (drum roll please)….wait for it….1200 bones a month from social security. Ahh, it’s a life but somebody’s gotta live it :-)
That sounds awesome! I want to do something similar when I’m that age.
Retiring is such a big life style change. I think about the change from being a high schooler living at home to a college freshman in a rented room and waitressing full time (I was part timing first year at a community college).
Although I can’t retire now (taking care of my mum), I am mentally preparing myself for retirement. I am also planning to minimize belonging over time to be more mobile when the change comes.
Saving money by moving to a location with lower expenses is ideal but it takes planning to transition well. I feel fortunate that I have the option to move back to the country where I grew up. I just pray daily that it will stay beautiful and affordable when I can pull the retirement trigger.
I used to worry sick about old age; being parentless, spouseless, and childless (only one nephew that I am not close to). All the money in the world can’t fend off vultures and age related mental and physical breakdown. I am learning to not get obsessed. Whatever comes, comes.
‘The major action step to take before deciding to retire with only $41,560 a year in investment income is to completely pay off a property to reduce living expenses.’ Actually, you should compare two cases: repay the mortgage vs save and invest a comparable sum in financial assets. Which yields a greater after-tax total return? There’s nothing wrong with paying rent if the returns from your investments more than cover the rent.
I have just turned 50 I am panicked, I work full time, its not enough money, working on getting a second job. I want to retire at 70 (God willing if I live that long), I really love the website…so informative. What would you suggest I do for investments. I was looking at Bonds, Fundrise, getting another Life Insurance policy, CIT. – I need to SAVE AND INVEST AGGRESSIVELY. I have no problems being frugal for the end result.
Hi Julie,
Don’t panic! If you’ve got 20 more years of work, savings, and investing to do, I think you’ll be OK, especially if you can get Social Security.
Please do a thorough analysis of your budget, your net worth, and any other alternative incomes you have.
I’d also try and keep your investments simple: stocks, bonds, cash. Control what you can control. The FS Forum is probably a better place to share all your details.
Thank you so much I will keep it simple and compound every 2 weeks.
I ask myself, what would I do if I retired now before i achieved my optimal goals. I would do the same thing i am doing now, which tells me two things, I like what i am doing and i shouldn’t ‘retire’
Financial Independence is the detachment from other people money – their money can no longer enslave you.
Financial Freedom is the freedom from money itself – money plays no role in the true meaning of your life.
Financial Independence is the first mile maker! Most of us are conditioned into chasing the number for
so long that less than 1% of the population ever gets to the next mile marker – Financial Freedom.
Hence – the financial target will forever be changed!
The one more year syndrome.
You mention you have regrets for not working longer.
What about “one more year syndrome” where people just keep working because the perception of additional safety.
Where do you fall in the spectrum?
Given I left work full-time at the age of 34, and I really didn’t start thinking about leaving work until age 33, I didn’t suffer from the one more year syndrome at all. I made up my mind, devised a severance negotiation plan, and took action the very next year.
I think people who suffer from the one more year syndrome or older, perhaps in their 50s or late 40s even though they probably have enough.
I don’t really like to dillydally and waste time when I want to achieve something. My problem is not being thorough enough and trying to achieve something too quickly. I’ve always been this way since I was a kid. For example, I took pride in finishing an exam first, despite making mistakes due to carelessness.
I should’ve just tried to take a sabbatical for three months and recharge for hopefully a couple years. What it is what it is at the end of the day and I’m just trying to share my perspective to others who were trying to anxiously retire early as well. There’s less of a rush than you think.
A few years ago, I was also desperate to just retire. I could’ve done it but it definitely would’ve meant some fairly drastic choices like never having kids and moving to a much lower cost area. I had taken a 3 month sabbatical but returned feeling even less motivated. Luckily, my wife persuaded me to look into a career change which ultimately led to a much lower stress job in a lower cost area.
That photo of the slum areas of Xiamen is amazing, and not least because it proves there really is “a Mexican Grill on every corner”!
Thanks Sam for laying out the various poverty rates (100-400%) and accompanying withdrawal rates. My gut wants to tell me 4% or higher (even 6%) is a safe rate because I’m a “smart investor who thinks he’s a genius for doing well in a long bull market”… but I know that’s not reasonable.
Luckily, although I retire in 3 weeks, I won’t have to worry about it for 9 years or so due to deferred comp payouts that I’ve got staggered over that period, although not as evenly as I’d like (it’s hard to make them even given the IRC rules on these plans). And my wife, 7 years my junior, doesn’t want to quit her job for another 5 years or so.
Hopefully we continue bulling on until then (and my investments keep growing meanwhile) or if we hit a bear, we’re going back into recovery by then.
“University of Texas, Austin announced families earning less than $65,000 would not have to pay tuition starting in 2020. Meanwhile, families making up to $125,000 would also receive some type of tuition subsidy. Hooray! Let’s hope this trend spreads across the country.”
I guess it depends on how they do it. On the one hand, sometimes scholarship monies are actually paid out of a school’s endowment.
However, on the other hand, often total tuition is a zero sum game, where those paying full tuition are merely subsidizing those obtaining discounts. Tuition is set based on the overall needed budget and the expected amount of discounts.
Just found this blog a month or so ago and it is my new fave because investing and planning for retirement is on of my current passions. The tone of this site is much more my style. Another site I frequent will hand your head to you if you say you “need” $2 million to retire. But in my case it will take that at a minimum to maintain our current lifestyle and perhaps do a little more traveling and going out to restaurants/bars which we both love. One thing I will NOT do is spend retirement worrying about money because I pulled the trigger too early. So it’s cathartic to here similar sentiments. My work is not that bad even if I didn’t have to I wouldn’t be working
Welcome to my site! It is more geared towards half the population who live in more expensive coastal cities in America and throughout the world.
I don’t feel that there is a voice for our population, so I’m happy to fill-in and discuss pertinent matters that affect those living here.
$2 million is a good amount of money. But once you do the math on the potential returns and what it costs in other expensive cities, it can be very tough to live off of without having supplemental side income.
Interesting article Sam. Thanks for your insights and planning. I’ll give my perspective from 26 years of retirement starting at age 56 (due to a bout with cancer) and presently at a healthy age of 82. My wife and I have lived mostly within the scope of 200% FPL. Yet, we have had a great retirement with only $200,000 in savings and investments. I’ll share a few details along the way.
Retirement these days is really a period of change with opportunities of trying new things and realizing new dreams. After I lost my pension due to a divorce, and my second wife lost her annuity due to a company bankruptcy, we started all over at age 65. It turned out to be a blessing as it forced us to rethink retirement and what that meant. After my two successful careers, and three advanced degrees, we decided to sell everything including our dream home and start over at age 65. My wife became a minister in our home town in Oregon which was her dream, and I went back to graduate school in Vermont to get an M.A. degree in ESL (English as a Second Language). It was the most fun year I ever spent in college, playing on the school soccer team. Upon graduation I received a great university job in Istanbul for two years and then worked for another two years in Jordan at a small college under a fellowship with the US State Dept. I hired my wife to teach wth me in Amman and we traveled through Europe on our vacations. Next, seven years of full-time RVing in the USA and Canada. Then back to Oregon for a more conventional retirement with social security plus the $200,000.
So…a long story short, whenever we need extra money, I return to the work force at $15 an hour for two or three months a year going from Amazon Fulfilment Centers to Camp Hosting to Costco. My current specialty is a wine specialist with unending job possibilities, working when I want or not. It’s a far cry from my early six figure salary as a professional, but it keeps me mentally alert and physically challenged.
So…in summary, yes. One can live on 200% FPL. A lot has to do with attitude and getting over the need to have a few million in the bank. It’s a grand world out there and I have never been turned down for a job, even in my eighties. I just had to reinvent myself many times with the thought of the following buckets: social security + investments + seasonal work + no pension.
Forgot to mention we have five children between us as a blended family and 11 grandchildren. We did pay for their undergrad years but they paid for their graduate degrees which includes two physicians.
Great to hear David! Thanks for sharing your journey and story. Also, with 5 children, surely they’ll help support you guys in case you do need money yeah? Perhaps there’s really no need to work $15/hr when you need money if you let your kids know about your financial needs?
I would help my parents with any and all financial necessities, and have been carefully trying to keep tabs to make sure they are OK. For example, I offered up my credit card for them to user Uber in order to feel more free and stop driving in their 70s. But no response. yet.
Can you talk candidly about the money stresses post cancer/retirement though? Surely everything wasn’t financially stress free after this period.
Perhaps a guest post!
David’s story would be a great read!
Dad’s also helped paid for two children’s undergrad, private school grad, and med school.
He’s the type, even when I tried to give him a brand new, expensive laptop he refused to accept the gift.
David’s story is a bit reminiscent of my dad’s. Dad had a heart attack in his mid-50’s and, thankfully, pulled through.
He decided to retire early and manages with a very minimalist lifestyle living in the outer parts of San Francisco.
I don’t know every single detail about his income/expenses or net worth, but he’s shown me a $200k-ish stock portfolio and has a paid-off house.
He tells me Mom and Dad live off of $25k a year, including the several years I lived with them. This is below the 200% FPL for a multiple person household.
Parents also spend up to 4 months of the year abroad traveling.
They rent out the upstairs 2 BR and live in the in-law unit downstairs.
He’s always talked about doing something to make money beyond passive income from stocks and real estate, but has never done so.
However, as evident by some of the comments in this post, not everyone can lead this same type of lifestyle.
I came to know I am very inherently Budda like when it comes to materialism: Being overly possessed by possessions has little appeal to me of a need to be and of sense of presence: But, confess, for about a decade long ago in my prime years, I thought to use my wealth, and let my handsome self have a go at the fancy cars, furniture, home, ladies in my life, high-end and walk-in star recognition got the #1 table or at the booth in the BH Polo lounge no wait for me at top chic restaurants or waiting for entry to most exclusive social clubs was how it was – with my 67 Jag Salon Limo, vintage Mercedez, and a classic old fun to drive 37 Bently… Travel and PARTY to be sure, for what I struggled to recall the day after wine and fine dining and interesting times in Las Vegas in the still semi-mob calling the shots was part of the theme. WELL… I was mostly more miserable than happy in consequence!!!
There was no sense of real intellectual purpose nor emotional harmony… I learned, for me, less is more freedom and friends in life more authentic. That’s all the money you need is that to serve, more doesn’t hurt, all you might gain but do not let it corrupt your true sense of happiness is the key.
It was more fun giving excess money away to help others get a step up in life or a little help with health care and remain anonymous in my doing so: I live very simply, very happily… I keep funded as might I just need doing due-diligence Property Condition Evaluations for others obsessions for the acquisition of high-end cash flow properties. – When the property and place interest me to experience and does not disrupt my harmony of simplicity be corrupted.
There is a Buddhist quote that I have in my home office, hanging right in front of me:
If one’s life is simple, contentment has to come. Simplicity is extremely important for happiness. Having few desires, feeling satisfied with what you have, is very vital: satisfaction with just enough food, clothing, and shelter to protect yourself from the elements. And finally, there is an intense delight in abandoning faulty states of mind and in cultivating helpful ones in meditation.
The Dalai Lama
We live in Belgium, Europe, and we are a couple (37&45y) with three kids of 11,9 and 4 years old.
Our governement says we are poor because wedont have jobs that pay us enough income to support our family, so we get extra governement aid: we pay less for healthcare, we pay less taxes, we pay less for the kids schools, we get more child support money etc.
In fact, for us it was a goal to be poor enough to get this extra governement support. The catch is: our government only looks at what our income from jobs is and what you make from income out of the stock market. It only for a small part counts our 4 rental properties and our own house or the two holiday houses we rent out.
So when you count the rental income and income from holiday houses we get, we are financially independent. I think our net worth in this instant is over 1 milion €. We dont really need all the extra support our governement gives us, but we are very gratefull for it. It was part of our plan to become FI.
This is why so many European countries are ranked in the top 10 happiest countries in the world.
But perhaps this is also why there’s not as much innovation coming out of Europe than the US? Do you think the government support hampers a person’s motivation to earn and create?
I plan to retire on 200% FPL but technically it is more than that since I have a paid off Bay area home. Prop 13 ensures my property taxes increase at the most by 2%. And the 200% FPL will be to eat drink and be merry :-)
Having being born in a 3rd world country and coming to USA with only $1K and no family support makes me confident I can rough it out if I need to lower my standard of living.
9 years ago with $1.5M, a home without mortgages, at age 43, we were considering early retirement. After talking to a few coworkers who DID retire early (with $10M or more since they joined the company way before our IPO), I found out most of them ended their retirement and came back to work in some capacity (startups, consulting, writing blogs, etc..). We were looking for traveling around the world, and the one person who actually that did stopped after one year: his reason? Travel isn’t as exciting as, uh, work. All of them pretty much advise against my early retirement (of course, their savings were much larger than mine back then)
9 years later, I’m still working at 52, pulling in ~$400K a year, with $4.5M liquid assets, $3M real estate investments that give us $75K/year net income, and we donate $ > 2xFPL every year and very happy I didn’t pull the trigger in 2010. Work has its up and downs, I’ve been with good teams and bad teams, but the FUM allow me to keep switching and stay true to myself (and said FU to those bad bosses, several times). My current work/team is fabulous!
The one book I’d highly recommend is https://www.amazon.com/Conquest-Happiness-Bertrand-Russell/dp/087140673X – When I read his book 10 years ago, it didn’t really register, but re-reading it after we obtain FI and many things he said start to make sense. For people who’d been lucky like me (have enough money and considering early retirement to seek happiness), please read Russell’s book and learn why early retirement is not the path to happiness. If you really have FUM, it’s your golden ticket to find more fun and challenging work, and make a difference using your charity donation: we are very engaged with our charity and were able to influence and connect with the people and kids whose lives were affected.
Must feel nice to have that extra $3M+ now yeah? I’m sure it feels a little like playing with house money where work is much more enjoyable once you don’t need the money.
I felt this when I did some part-time consulting in 2013-2014. And I’m down to look for really meaningful and fun work again now that my boy is going to preschool soon.
Thank you for sharing your journey. I was in a work funk and desired an early retirement for the past couple of years. It forced me to delve deeper into my work life and its meaning, and also about how I function.
Working for me isn’t just about money. Wealth in the form of money has never been a motivation. My job gives me financial and functional stability. I also like my coworkers and management (we don’t have revolving doors; people tend to work 25-35 years before retiring). Instead of feeling trapped, I began to see my job in a different light. As it turned out, beginning 2018, my mother needs my assistance financially. Retirement is out of the question until she’d no long be with me. This change also gives me more motivation to stay working. My work isn’t just about saving retirement funds, it also keeps my mother safe and sound (I am sure people with young children feel similarly).
When I was in work funk, I read quite a bit about FIRE. And my feeling is that many people zero in on numbers. It is no different than zeroing in on moving up the company ladder. Very few ask themselves why they want FIRE and who they are as functioning adults. Work isn’t evil. Money isn’t everything. Hobby and travel are icing on the cake. The cake is the point, and is the essence of each individual (plus spouse, to add more complexity).
I’m 54 and my wife is 52. We have about $2.4 million in liquid assets and a paid off house worth about $600,000.
I can retire at 56 and receive a pension of about $4,000 a month and keep my health insurance at a rate of about $400 a month.
The plan is to sell the house and travel to world. The CURRENT plan it to travel until we are tired of traveling and then settle down in Thailand or Malaysia (both of which have 10 year renewable visa programs.
We have been traveling for 6 weeks a year for the last 20 years so I do not think traveling full time is going to be a problem. (BUT, you never know.)
We have been to Japan, Malaysia, Thailand, Laos, Vietnam, Indonesia and India 2 or more times over the years. However, we have only seen the tip of the iceburg in these locations. And there are many more places we hope to visit – Morocco and Uzbekistan are at the top of the list.
My wife is from Japan and her parents still live in Japan. As necessary we will stay in Japan to take care of her parents as they age.
We do not have any children.
So we will not be retiring early like many in the FIRE movement – but – we will be retiring much earlier than many.
Looking forward to the last 2 years of work and HOPEFULLY many HEALTHY years of retirement.
The pension amount is awesome! And you know what else is awesome? Malaysia in terms of having the best food in the world. I am super jealous. I live there for four years as a kid and the food is so cheap and good. Just like Singapore. I don’t think you guys have any problems retiring today if you want.
Thanks for the reply FS.
Yes Malaysia is wonderful. We were just there last December and the costs are still very reasonable. There is a Buddhist temple in KL that serves a buffet lunch every day that must serve about 1,000 people a day. The food is so delicious and the cost is about 8 ringett or $2.
Singapore, we have been there 3 times in the past. We will likely not spend that much time there in the future. The cost of housing in Singapore is I think 2 to 3 times the cost of housing in KL – just not worth the difference. (And its a pretty boring place in my opinion.)
Thanks for the input that we can retire now. I think we will wait 2 more years just in case. In addition to the $4,000 a month pension, I can get about $2,000 a month for 6 years if I wait until I’m 56.
Just took early retirement at age 58. $1 million in 401(k), $70,000 cash, $50,000 in savings bonds, $220,000 stock portfolio, and $90,000 saved for my 10-year-old daughter’s college. No debt, 10 years left on mortgage. Small pension from previous employment of $1,200 a month starting when I am 60. Monte Carlo simulations say I have enough to live until 95.
Congratulations! A pension is awesome. What are your monthly expenses? And thank you for not making me feel like the only old dad around.
About $3,000 a month, right now.
How did you do all of that, please explain to me I just turned 50.
Julie: its hard to explain. I grew up destitute, and have saved money all of my life. I have always lived simply, and really only ever purchased things I really needed. I have been lucky to have a career that paid me well and allowed me to save at least 25% of my salary, and I have diversified my portfolio enough (purchased a savings bond every month for 20 years) that I have a sufficient mix of both conservative and aggressive investments in the stock market and my 403(b)s which has resulted in being able to currently have 1.3 million and retire at age 58. My wife finds this hard to believe, as she is German and grew up with a very different philosophy (if you don’t work, you have no identity), whereas my philosophy has always been that we work to live, and not live to work. In any case, no one has the right or wrong answers, we all try to do the best we have with what we have. So I wish you the best, and hope that you can find your way as well.
A note from Charles Gave on negative rates:
When meeting some clients a few weeks ago in Amsterdam, I made my usual
remark about the stupidity of running negative interest rates. In response
my host told me a sobering story. He manages a pension fund and had
recently started to build large cash positions. One day he was called by a
pension regulator at the central bank and reminded of a rule that says funds
should not hold too much cash because it’s risky; they should instead buy
more long-dated bonds. His retort was that most eurozone long bonds had
negative yields and so he was sure to lose money. “It doesn’t matter,” came the
regulator’s reply: “A rule is a rule, and you must apply it.”
I put 200% FLP but to retire in a cheap country. My wife and I aim to retire between Spain (next to my home country France) and Colombia (where she’s from) while traveling 3-6months of the year. We aim for 1.5M but could pull the trigger at 1M if we’re too stressed out by our jobs (currently working in China).
Sounds like a great adventure to me! What are you guys doing in China?
As someone living around 200% of the FPL right now at 22 I think if I was to ever reach a point where I could live indefinitely with no real outside stress I’d be completely satisfied with my current lifestyle. This is also coming from the perspective of a single person though. If I had to worry about taking care of someone else retiring early definitely would not even cross my mind if it meant they would not have any of the opportunities I had growing up.
True. Life is pretty inexpensive just taking care of oneself. Generating 200% FPL from a portfolio is fine for a family of three in many parts of America. But only making 200% FPL from a day job seems a little tight to me. Feel like it’s hard to ever get ahead.
I just retired today. 44. 725k in equites and mortgage free house. 32k annual spending. Not worried. ✌️
Congrats! Having a mortgage-free house is huge. Do you have dependents?
No kids!
No kids makes everything so much cheaper and easier. So congratulations.
Just curious, what motivated you to pull the trigger and retire?
Using the Personal Capital retirement planner a couple with $1.6M at age 55 has a 99% portfolio survival rate at age 90 with a $48K per year spend rate ($4K a month) assuming $36K SS income starting age 67. That’s assuming 3.5% inflation, 20% marginal tax rate during retirement.
You don’t need $5M if the kids are out of the house but I’ll probably hang in there until 62 and not bother being frugal.
Makes sense, and I believe it. Retiring at 55 with no kids to support is much less costly than retiring at 45 with kids.
You’re right that a monthly budget spending 67% of income on rent for a 1 bedroom apartment is silly and needs more income. But quite wrong that less than 200% of the poverty limit is not enough in the Midwest when the house and all other debt are paid for pre-retirement. It’s plenty. But it was a great laugh and reminder that our values are not compatible with the elitist attitudes of coastal cities where a Land Rover and private school are “required” to live.
Glad this article made you laugh! :)
If you feel OK making 200% of FPL in the Midwest, that is great. Your belief is why I’m heavily investing in Midwest real estate. I’m hoping other people from the coasts realize they don’t need as much and continue to move inland as well.
I’m very pro public school. Not sure how that is seen as elitist. See:
Would You Give Up $1 Million To Go To Private School?
Public Or Private School? Depends On Your Fear And Guilt
If you have a problem with the definition of poverty and what income level is low enough to get government assistance, please let the government know. I don’t determine the levels. thx
The government definition of poverty has to apply to everyone so it has to include enough to cover rent, transportation, education and retirement savings for those starting out in life. Your title was specific to early retirees. An early retiree who is debt free and owns the property they live in does not need to pay for those things or continue to save for retirement so the same poverty income level can provide a much higher standard of living. Early retirees also have the support of their savings to help them through any rough parts that those living in true poverty do not. You said living on income of less than 200% FPL would be tight anywhere in the country and were confident we would agree. I not only do not agree for the case of an early retiree outlined above, but find it rather elitist to assume that a poverty level income is a life of deprivation and something that simply could never be acceptable. Income is but one part of a happy life. Time spent earning a higher income is time not spent on other activities that make life worth living.
I do agree with your basic idea that many early retirees are cutting it too close when they leave a career in a rush to show off they are retired, but that’s maybe my scars from living through the late 70’s energy crisis, investing through the dot com bust and Great Recession and watching health and dementia issues decimate my relatives investments. Just not the idea that poverty level income post retirement defines failure.
Nobody said failure. Where did you get that idea? We’re following the federal guidelines.
Instead of just talking about opinions and feelings only, let’s include NUMBERS.
What is your budget, situation and overall financial situation. The numbers matter. I include the numbers in this article so we can be more objective.
“Instead of building a large enough passive income portfolio to cover a comfortable lifestyle, I’ve noticed more people are willing to retire early to live in or near poverty!” So…an early retired lifestyle with an income in or near the poverty level cannot be comfortable?
“Any household income under 200% of FPL seems really tight, no matter where you live in America.” “I personally would not be willing to retire early if I had to live in or near poverty.” “After going through this exercise, I’ve concluded that my family of three would need to earn at least 300% of FPL ($62,340) in early retirement to feel reasonably comfortable.” Um…you’re right I totally missed there how you meant that having an income in or near poverty level would be a successful early retirement outcome.
“If you are OK with living in abject poverty (100% of FPL)…” Well…abject poverty, aka extreme poverty or deep poverty is something different than 100% FPL. The Center for Poverty Research at UC Davis indicates that the US Census Bureau defines deep poverty as living with income of less than 50% of its poverty thresholds. But I see how adding that adjective to 100% FPL instead of calling it regular poverty sure makes it scarier than it would on just the accurate words or math. Also, true poverty is something more than just an income number—see my response to Andy below and the United Nations Sustainable Development Goal #1.
But you asked for my numbers, which I dug out just for you today and are $4287 annually for property taxes and insurance. That’s right, I pay less than $360 dollars a month for taxes and insurance to live mortgage-free in a 4 bedroom 2300 sq foot house with a garage and a basement in a Midwestern metropolitan area with my spouse and three kids. Don’t worry—it is in a blue zone per your Investing in the Heartland of America Real Estate post map—not the dreaded gray zone which is likely cheaper. There are also two grocery stores, over a dozen restaurants and more than three dozen retail shops in a 1.5 mile radius. Of course, if you want to shop at Saks or Louis Vuitton or eat at Ruth’s Chris you’ll need transportation for the half-hour drive there. Let’s see how that one change in housing costs impacts the 200% of FPL budget that makes you a little angry because you want better for your wife and son…$3115-2100 rent + say $800 for taxes, insurance and maintenance on a smaller place for your smaller family = $1815 per month. Look at that-enough for the extra $650 in spending you already identified you want and still room for more fanciness or a lifestyle under 200% FPL! You’re right that you’d probably have to leave SF but clearly the other choices are not limited to imposing on your family. If you need more number examples there are dozens of FIRE bloggers out there that publish their expenses.
Seriously though, poverty is a big problem to solve and kids too hungry and worried to learn are a heartbreaking outcome. Making fun of millionaires or otherwise globally wealthy people because their passive incomes are only near the FPL by calling them “paupers” aka destitute and relying on charity (per Merriam Webster) sure doesn’t improve the social stigma of poverty or help people understand how hard it really is to live in poverty without any safety nets, not even family to live with free if the income earned isn’t adequate to support the preferred lifestyle. With generational poverty the family probably also needs help. Sites like Financial Samurai can help close knowledge gaps from inadequate personal finance education learned at home and in the US educational system and help readers overcome stereotypes. As a voice for a higher cost of living coastal town surely you could have made readers aware of how using the same FPL figure for an area like SF as a low cost of living area doesn’t make sense? A voice for change and learning if you’re interested in helping make the world a better place and all? If you’re just in it for the clickbait to up your site traffic then forget I said anything.
Your comments are super entertaining Marie. You’re totally missing the forest for the trees. And you are being way too sensitive to make you a pleasant person to be around.
You share property taxes. Anything else?
What do you think is the reason why you are so offended by the post? Look around. You are the only one.
I’m a millionaire and my feelings weren’t hurt Marie. I can’t imagine what else you are so easily offended by. Be happy you live in the Midwest with a low cost of living.
Don’t see how you’re helping anyone here, let alone the impoverished.
Why are you blaming Sam when the government determines the level of poverty in the country? They are including low-cost areas of the country. If you think the government is elitist, blame the government, don’t blame the numbers.
The numbers don’t lie. People do. Until you can show us your numbers and tell us how well off you are living on 200% FPL, you’re just being emotional and not looking at the numbers.
A basic cost of living calculator easily shows that $31,170 in Brownsville/Harlingen TX equates to $57,490 in Oakland/Hayward/Berkeley, CA which is not that far from the $62k Sam considers the minimum for his family to feel reasonably comfortable. Location is a guess because I don’t know where 45 minutes outside of SF he finds acceptable and presumed 45 minutes to the beaches of South Padre Island would be better than suffering through a miserable midwestern winter.
I’m not blaming Sam for using government definition of poverty level to start a discussion of margins and portfolio size and whether too many people trash a career too early in the rush to label themselves early retirees. I’m disappointed that he chooses to apply the poverty label to persons with a “small” portfolio (“How much you need to retire to live in poverty”).
Per the United Nations Sustainable Development Goal #1:
“Poverty is more than the lack of income and resources to ensure a sustainable livelihood. It’s manifestations include hunger and malnutrition, limited access to education and other basic services, social discrimination and exclusion as well as the lack of participation in decision-making.”
This hardly describes most US early retirees, even those living #vanlife.
I think a percentage of the FIRE movement sees it as sport “I retired at 30! Look at me!”
Which I understand…at the start of my journey six years ago (@40) I just couldn’t wait to get to the finish line.
Over time, I’ve come to understand this is more a toolkit to customize to your family’s needs. I won’t retire at 30 but I’ll retire before 98% of my peers, and for now I have plenty of FU money, which makes life much better!
It’s been very empowering and satisfying for me.
One piece of advice I’ll throw out there is focus on income above all else. Embracing enough is good, and required really, but as you age that definition will change. Focus on income and your options will grow exponentially.
For sure. Let’s see who can outdo each other right?
I wanted to work until 40, or 5.5 more years, but when I realized I could get a severance package that could pay for 5-6 years of living expenses, I decided to pull the trigger.
I absolutely agree with you on focusing on INCOME. This is the growth mindset.
I love this post as it portrays sort of close to my own personal situation.
I think the argument is, do you want to live in NYC while washing dishes or do you wanna live in a small town in North Dakota while having a decent office job? Yes, the allure of NYC is there and we all would like to live in a place like that if we could BUT, we sacrifice a whole lot in the process. Therefore at the end of the day, it all really comes down to escaping the rat race ASAP so you’re not bind down by anything then you’ll be truly free.
There’s definitely a lot of early retirement fakers out there who don’t even have close to the numbers in your figure to live in poverty. All they’re doing is trying to make money online so they don’t have to go to work.
But restricting yourself so much in “early retirement“ isn’t appealing at all. Imagine wanting kids and not having kids because you can’t afford it. Imagine having to still live in a crappy place in your 40s.
Retiring early in a bull market is really stupid. And I see stupid people everywhere online right now trying to get convinced by stupid people who don’t have enough real world experience during down times.
I definitely feared having to put my life on hold for the desire to be free. Now that I’m a dad, I can’t imagine life without my son. The joy is so amazing. And to be able to spend so much time with him until he goes off to school is a blessing.
Retiring in a bull market is not financially optimal. At the same time, I retired at the beginning of a bull market… I could have made a lot of money if I stuck it out for 5 more years from 2012-2017. In other words, there’s no right time!
But there is an ideal time to retire early.
Interesting. I live in a mid-size West Coast city (so not as expensive as SF) and the minimum budget i’d be comfortable intentionally early retiring on is $10k with a family of 3.
$3k housing/utilities
$1.5k health insurance
$.5k Travel
$2k Food
$2k private school tuition (public schools here are overcrowded and terrible)
$.5 Car expenses
$.5 Personal expenses (gym, clothes, gifts, cell phone)
Currently, we could pull about $8500 a month passively so not a huge gap but I wouldn’t be wiling to cut any of the above voluntarily. If I lost my job, yes, there would be areas that could but cut but I wouldn’t want to permanently lower our lifestyle.
Thanks for sharing the budget. $10K/month after tax for a family of three is a nice lifestyle. And the $3K for housing is reasonable and probably gets you a really nice place right?
At a 3% withdrawal rate, we’re talking $4 million to cover $120K/year. Thanks for adding in the cost of health insurance there, which is very realistic. We pay $1,735/month for three.
Yep- the 3k for housing is pretty reasonable. Currently, we’re renting because we recently sold a place in a higher cost area. Overall, I expect it to cost around the same once we buy (say opportunity cost @3% of 700k + maintenance/taxes/repairs).
I think my 1500 health insurance cost might be tad low since that was just premium- should probably add another $500/month for actual pre-deductible/co-payment spending.
Adding that in and adjusting for tax, we’d probably need atleast around $4.5M in total net worth to have a shot at retiring. So, yeah, those various FPL scenarios you talked about are well out of reach for us without a very uncomfortable amount of lifestyle adjustment + health cost risk.
Rich – How are you paying $3,000 for housing in a bad school district in the midwest? You can get housing in a good school district in California or the NE for less than that.
Unless you are living in a big coastal city, your housing expense should not exceed $2,000 per month. Hell, I just found a 3 bedroom/ 2 bath townhouse in SoCal 1 mile from the beach and in a 9/10 rated school district for $3,200.
$2,000 a month for food is also insane. You spend $66 per day on food? I’m concerned for your health.
Nope. When I retire (not all that far off) I want to be able to DO the things one can’t reasonably really do in a week or two of paid vacation.
Go hike Easter Island and snorkel in Bora Bora, rent a house for a month or two on an Aegean island, or in Scandinavia. Main considerations should be deciding just how many stars I have to have for the hotel we will be staying in, and the restaurants we will be eating at.
I sure as heck don’t want to be worrying over whether I should get the house-brand coffee versus Maxwell House, instead of Blue Mountain versus Kona (let alone cat food versus grass fed beef).
What makes this doable is saving steadily, having a spouse with the same sort of spending habits, investing reasonably wisely (don’t have to be Warren Buffet), doing your own taxes so you actually understand what’s going on there.
Most importantly, you can’t be wishing your life away waiting for the future.
It may take awhile but chart a career path towards having a job that, that while it may make it difficult to take off more than a few weeks a year, doesn’t require wild hours, strange schedules, and is sufficiently rewarding, both in remuneration and satisfaction, that you don’t mind sticking with it awhile.
Newsflash! Even most rich people work. The difference is that they get more choices as to what they work at, as well as when, and for how long.
Good stuff! How old are you and when do you plan to retire? The fear a lot of people have is waiting to be too old or too sick or too injured to retire and do all those things. FOMO.
Yeah, I agree with Snazster. I feel that the “FIRE” crowd usually underestimates how much money that they will need in life in general. If you are a single person, with no children, and you are comfortable penny-pinching, then that’s one thing. Go ahead and retire with a small portfolio generating a meager income. But for many, the whole “FIRE” movement focuses too much on being 35 and telling people that you are retired.
The way I look at money is how it relates to my time. My time is the priceless object that I sell for as much money as I can get. I take that money and spend some of it on my life’s expenses, and the rest I invest in income-producing assets. I will probably retire when three conditions are met: 1. I no longer enjoy my job. 2. I am generating enough monthly passive income to provide a comfortable lifestyle. 3. Debt-free.. This will probably happen when I am around 50.
Obviously we all want to be healthy, and not “too old to enjoy” whatever it is we see ourselves doing. But I would rather do some of that stuff now, so that’s what our family does. We don’t save quite as much as we could but we do things that are cool and build memories. Our family is also active and we focus on physical activity. For me that is surfing mainly, but also running, hiking, walking, etc.
The “do-ability” of retiring at 200% of the poverty level is not so bad if you live in a poor area. Not all of us are coastal elites. Consider that $25,000 a year goes a long way when rent is $650 a month.
Here’s my budget
Rent: $650
Car ins: $ 47.26
Gas: $ 65
Phone: $ 29.64
Food: $150
Grooming:$ 20
Misc: $100
Health: $ 72
Gaming: $ 65
Booze: $ 50
Obviously, health would go up upon retirement, but misc and gas would go down. This budget is $1,250 a month of spending and $25,000 would net to about 22,500 which gives you 1875 a month. That’s $525 of fun money, which is pretty sweet. I mean, you can go to dinner at Applebees for like $25, go bowling for $5 an hour, etc. There’d be money for vacations too.
Also, not everybody lives off bonds in retirement. If you have a good dividend paying portfolio of stocks and junk bonds with a few REITS thrown in, there’s no reason you couldn’t get 4% in dividends a year and never draw down your principle. For example, Vanguards junk bond fund pays like 6% (monthly compounding). I don’t think very many people are really going to try to live off the 2.25 govt bonds.
How old are you and how many people are in your household?
BTW, where does the term “coastal elite” come from? Why are people considered elite in this situation? Half the population lives on the coasts due to the jobs.
Do you feel like you’re getting ahead on your budget? And do you think you can amass $480K – $1.2 million on your existing income to retire early and live on your budget?
I’m 23 and I rent with 2 roommates.
Coastal elite is a person who thinks that a $100,000 income is “low” and “barely getting by”. It’s an upper middle class or borderline wealthy person who lives in a 100% white gated community with 2 Cadillacs in the driveway who is out of touch with what life is like for the vast majority of Americans. These are the typical “champagne socialists”. Not everyone who lives on the coast is a coastal elite.
I’m currently investing over 50% of my income (net income $28k, spending $12). Over 20 years I’ll be over a million, the interest from which should support a comfortable lifestyle for me in a low cost of living area. Unlike most folks, I don’t need a mcmansion or Cadillac CTS-V or lunch at a 3 michelin star restaurant to enjoy my life. I also don’t have anyone leeching my money. I’ve seen too many guys ruined by a spendaholic wife, or a divorce. F that.
Gotcha. Thanks for the explanation! I didn’t realize that was the definition.
I’m glad he got things figured out. When I was 23, I lived in a studio with my friend in New York City. It was a fun time, but I have a quarter life crisis.
Basically, if you support diversity, but live in a gated community and send your child to a private school, that’s a coastal elitist. It’s similar to a champagne socialist or limousine liberal, a person who has benefitted greatly from capitalism and still hates it. A person who says they care about the environment then drive a huge SUV, etc. A person who believes that Hillary lost because of Russia, and not because of how working-class whites in the rust belt were sick of getting sodomized by globalists. A person who thinks the SALT deduction (making poor folks share the cost of your choice to live in a big house or high tax area) is a good thing.
I agree with many of your points. The hypocrisy is baffling.
Joe – Do you mind sharing your income? I’d like to use your comment for a new post, and just want to get as much detail as possible.
thx
I make about $35k. I live in a rather small city (~50k) in Rural PA. I’m glad to help improve the site, as I’m sure there are other minimalist people like me who would benefit from information that is tailored to them.
Let me know if any other info would help.
There are other methods to retiring early without living in poverty:
1) Have a working spouse provide health insurance and extra income
2) Be a childless couple with side income
But I think most people want the love of having a family and both wanting financial freedom. That would stink if my spouse was retired and I had to work all day.
Having a working spouse so you can retire early is definitely one of the best retirement hacks!
How To Convince Your Spouse To Work Longer So You Can Retire Earlier
Interesting and helpful post Sam, although a little confusing to understand IMO.
If I understand it correctly, the amt in the far left column is what that investment portfolio would “throw off” based on the return %…and that total is below or at the Federal Poverty level.
Like you mentioned about being used to saving and living frugally, I also equate that with being ok to living beneath your means. I’m ok with living very sparsely, with housing taking care of in my nice neighborhood.
As a final point, this seems to mainly take into account an indefinite time horizon for living at this level. But, for people that just need to “bridge that gap” until SS kicks in, this seems more “dooms day” than it is. I’m planning to supplement our one income household with investments and then collect at 62 (or 9 yrs from now) and my wife might start collect between 65 and 70. When hers kicks in…(if investments continue to grow and barring a meltdown) We’ll be pulling in more money than we ever have before,(in the recent past) or very close to it
Unless I’m missing something, or if you’re just assuming SS will be defunct….it doesn’t sound as scary as it might be…for a while.
Thanks for FPL tables… really interesting to see! As I’m sure we all have done, I took these numbers and weighted them against my situation.
We have a family of three and I plan to retire on dividends and a little rental property income. I suspect I’ll be inside the 200% number (around 40k a year).
However, just as your family of three budget shows, the majority of that income goes to rent. For us, we will own our home and property expenses should be at max 7k a year (instead of 25k). This give us a pretty large buffer. Just wanted to point out that living under 40k a year is easily workable when you own a home.
As always, great article!
Wait until dividends are suspended to divert cash flow to debt payment and the principal takes a hit b/c companies are floating new shares to help pay back debt.
But again, I missed out on the entire 10 year bull run, so I’m pretty bitter. ARgh!
thats why you invest in companies with a solid balance sheet and little debt. Examples: XOM, T, MCD
AT&T has $197B in debt and $10B in preferreds, they have more debt than equity. And their business is shrinking on an organic basis and declining in profitability. I’m not sure you have the definition of “solid balance sheet” quite right. Just because a company is a brand name doesn’t mean it is a safe dividend. Ask everybody who owned a bank stock in 2006 how safe their dividends were. People who have only been investing in a massive bull market with Fed induced debt bubbles forget that dividends are paid out of earnings and when earnings go down in a recession so can (and do) dividends.
And AT&T is currently working hard on that debt. Sure, some companies will cut their dividend during the next recession, but it’s folly to think all companies will. Diversification is key! However, I really wasn’t trying to highlight dividend investing… I was just pointing out how important it is to minimize housing costs during retirement.
There is beautiful irony in picking a lousy company that is also the most indebted in world history (AT&T) when making this comment.
I agree with everything in this article. It’s also similar to some of the things Suze Orman has been saying that has brought her under attack by some segments of the FIRE movement.
Too much of the FIRE movement seems predicated on being so miserable at your job that anything would be better. But another option is find a livelihood that doesn’t make you miserable.
The older I get the more I think taking a gap year instead of full retirement makes sense. I’m planning on taking 16 months off in Spain to become conversational in Spanish, have my daughter experience a different culture at 6 years old, and to explore Europe. Life is a journey and I like the idea of trying new things and new paths. I’m an accountant so it should be quite easy to get a new job after the gap year.
I agree with you. 16 months would be huge. Taking a three-month sabbatical would have done wonders for my career longevity.
Enjoy the journey!
To me, “early retirement” feels like a scam. Even retiring after 65, many people go into depression for 2+ years, having lost their purpose in life. I can’t even imagine the pain and suffering people would go through with early retirement. My goal is to never retire. Maybe change jobs or do some business, but never retire.
Thats why you need to have a life outside of work. The reason people get depressed when the reitre is that they built their whole lives around work. Dont let your work define you
200% FPL would be very tight in SF.
For Portland, that’s not too bad. Our regular expense is around that level and we’re pretty happy with it. Of course, if we count travel, then our spending is closer to $50,000/year.
100% FPL would be really tough even in cheaper locations. In that case, I’d rather work a bit longer and save up more.
It’s mainly for safety sake. You never know what’s going to come next in life. You might be able to live on minimal expense now, but life changes. Life never gets cheaper so everyone needs some cushion.
Sam, interesting insight as always! So that I can put in context, what is your definition of early retirement. Is it anyone retiring before they are eligible to take social security at age 62? or at 59 1/2 to access any of their respective pre-tax accounts without penalty?
Yes, those are two good definitions of early retirement using age as a variable.
Related: The Ideal Age To Retire Early To Minimize Regret And Maximize Happiness
The official CPI will be rigged to make TIPS a loser. This is policy. Financial repression. 200T in unfunded liabilities are coming on balance sheet. This is why the Fed will have to return to QE in spite of so called “strong economy”. We are headed to a fiscal disaster as foreign demand for Treasuries has dried up since 2014. Back in 2013 during the debt ceiling fiasco, China saw what we were going to do and said screw you guys. “We will no longer accumulate treasuries.” Hence BRI, BRICS Payment to go around SWIFT, Shanghai RMB crude futures, and soon Shanghai gold futures in RMB and USD on our Comex.
But I did miss out on the 10 year bull run, so I’m hoping things will come back so I can catch up.
If I may, just focus on your risk tolerance, adjust your allocation, and take the long-term approach. 10 years on the sidelines during this bull run in inexcusable. Even though we may understand all economic indicators and keep up with current events, there are millions of variables that make it impossible to time the market. The opportunity cost of sitting on cash may not be worth the downside risk of the market crashing, especially if your retirement is beyond a ten year time horizon.
Btw all of your points are relevant, but there’s always a common denominator between people who have allocated all of their retirement funds into bonds or treasuries after the 2009 crash. The sky or the market will always fall because of A, B, C, or the combination of all. A crash may or may not be imminent, the financial system may or may not be completely revamped, there may or may not be new technological innovation that propels us forward, there may or may not be significant financial implications that we are not aware of…
You get my point. We strive to know all (which is a good trait), but we all have the tendency to hone in on data points that confirm our bias (which hinders us).
But yields are going negative! Lagarde being tapped as Mario’s successor makes it a done deal. If Euro rates are negative 3% then Powell will have to pierce the zero bound, for the differential would be too great. Too much capital would flow to the USD making the global margin call worse.
So there is no way to achieve critical mass. There is no number at which enough passive income can be generated. This is the sovereign debt crisis. There is too much debt. It can’t be serviced at real positive rates. So bad now that nominal rates will go negative. Powell subtly told us this in Chicago last month with language changing from the “zero bound” to the “effective lower bound”.
Savers, bondholders are the marks at the poker table. They will be sacrificed.
As for equities…are they really equities any longer? Look at how polluted balance sheets have become with debt fueled buybacks. And they all use Enron type accounting now. Corporate managements are looting the company treasuries!
You remind me of the guys that expected The End back in the 70s to come about from a combo package of: full nuclear exchange, ice age (which is actually a possible post-nuke scenario), and the collapse of the dollar. I’ve been hearing this last one my whole life. Much like the claim of the great leftist phase shift, which I have also been hearing most of my life, it is not going to happen. If everything goes to hell, gold will do you no good until AFTER things start recovering and assuming you will survive the phase change is pretty presumptuous.
I’m betting on civilization making it, because what other option is there? We are a clever species and few of us sit sit around and wait to die if things get really bad.
Financial armageddon in 2008 came about as close as we will probably get in our lifetimes. Between the Fed, Global Banks and Government backstops, the crisis was averted. If we ever get close to the edge again, processes are in place to address the worst of the crisis. Global governments find ways to collaborate to avoid global armageddon when it is at the doorstep. If all Hell does break loose, there are no safe havens to run to no matter what you do to prepare for it.
They just papered over the GFC. Since then debt growth has outpaced even the inflated official GDP numbers.
In 98 a hedge fund almost collapsed the system.
In 08 an investment bank,
Next crisis will be on the sovereign level.
But there is a solution. There is a mechanism to reconcile the mismatch between assets and liabilities on sovereign balance sheets. It’s an accounting trick. FDR did it in 34 and Trump has been hinting the same. Once done civilization will be out from under the yoke of debt deflation and a spectacular expansion will ensue. Just don’t be exposed to ghost assets which litter the investment landscape presently.
If there was too much debt then its price should be low and its yield high. What is weird is that investors are happy to pay high prices for all this debt.
I definitely do not want to live a minimalist life as an early retiree just to shave off a few years of work.
As a physician I have invested a lot to build up a considerable amount of human capital and retiring too early would waste it. It is incredibly difficult to hang up the stethoscope for a period of a just even a few years and then try to get back in if you find out you made a mistake. Even if you kept up with your active licenses and required continuing medical education each year, just being out of medicine means you will fall behind in your knowledge and skills and it is hard to regain that.
That’s why I’m ultra conservative and likely retire a little later than I could have just to build a margin of safety (I would like to keep my SWR at 3.5% or lower).
Hi Xrayvsn, I agree wholeheartedly. Veterinarians (though not as well paid as physicians) invest a lot of time and money to reach the level that we do (again, continuing education, licenses, etc), and to give it all up too early is a shame. I’ll retire at 59 1/2 and be happy. Sam’s posts have been invaluable!
Between 1990-2005 there seems to be a healthy spread between Treasury yields and inflation. In this model, 2% leaves you with negative “real” income. To make this work you’d need to build a passive income portfolio of riskier assets that beat CPI by 2% (or figure out how to personally leverage up on TIPS)
Or, you could consider junk bonds, dividend stocks, or other forms of passive income.
I was in Southern California this week for work. I did an early run. As the sun came up, I ran by a Leisure World which had a rehabilitation facility right next to it. As I rounded the corner, an old woman’s face appeared in a window under harsh light and dim sunrise. The curtains of her room were in tatters. The bed looked shabby. She was alone.
I ran away fast going “no no no no no.”
I’m not sure why.
I am sure I’ll be working for a long time. I don’t want my parents, my wife, or myself to end up in that room at the end of life. I don’t know if a lot of jobs in this country worse than being in that room in old age.
Yeah, I know what you mean.
Whenever I see a senior, alone, in their senior homes, I feel terrible for them even though I know nothing about them. For all I know, they may have wanted to retire there to peacefully live a low-key retirement life.
However that projection that I feel is because being alone and weak is one of my greatest fears of aging.
I don’t want to be in a position where I don’t have an adequate retirement fund or have made terrible health decisions to put my in physically bad shape. I don’t want to have to depend on my kids when I’m old financially. I want to be able to have options ton move or travel around anywhere I please when I’m of old age. I don’ want my kids to come home to me when they visit with my back all curled up and barely able to hold my grand children. Or become exhausted with joints and hurting everywhere after running around with my grand children for five minutes. I want to be able to engage with everyone, mentally, intellectually, physically, until the day I die.
I don’t know the real reason for why I feel that fear so much, but if I were to guess, I’m sure it has to do with my personality. I’m an INTJ who’s fiercely independent (to a fault). Having little to no option makes me feel claustrophobic and anxious. Not being able to do what I want or not being able to express my opinion in the way I feel is logical, makes me feel frustrated. I can go days without interacting with friends or sometimes even weeks and be completely OK with it as long as I’m doing stuff alone that makes me happy. As long as I know I have the option to do what I want, but am making a conscious choice in everything that I do in life. How I spread my time. My money.
I’m going off on a tangent here, but I just wanted to reply to your post because your “no, no, no, no” part resonated a lot with me.
Thanks for responding. At least one person out there feels the same as me.
Interesting that we are both more introverted but it is important to us that we are not alone as we age.
This will require social and familial investments to compound in addition to financial and physical.
INTJ also and you are echoing my exact thoughts on this.
NICE! And why am I not surprised?!
I always get excited to meet a fellow INTJer. In fact, there is one other INTJ at work that I know of (we have about 400 people in our organization) and we get along great. We constantly challenge each other, we seldom offend each other even though we’re blunt, and we don’t mind if we don’t talk at all even if we’re in the same room together.
Here are some interesting tidbits about INTJs:
– INTJ’s make up only 2 or 3% of the population, but are represented in numbers way out of proportion for those that are in upper management / executives
– INTJ’s are perceived to have very poor emotional IQ, because of the way we think / judge. We only filter information objectively as possible, and discard relational or personal aspects that turn people off when talking with INTJs
– You would think INTJ’s would get along with someone who’s their opposite, e.g. someone’s who’s extremely social, someone who loves realistic ideas, etc., but it’s actually the exact opposite. INTJ’s get along best with those that share similar traits.
– Most INTJs don’t care about credentials. It’s all about competence. The con here is that even though an individual may have gained an INTJ’s respect through competence, it’s very salient because for INTJ’s that competence needs to be continually shown which leaves INTJ’s frequently dissatisfied with leadership.
-INTJs, although blunt and “objective” in thinking, tends to overthink a situation and marries a thought that they developed in their head and projects it to reason that it’s true, thus we make a lot of assumption about people’s behavior.
Anyway, that’s enough. I had a fascination with the 16 myersbrigg personality type and jotted down some notes that I wanted to share.
Another INTJ here! My mother passed away at just 75 years old. The last 5 years she was in bad health for a number of reasons. My Dad did absolutely all he could for her. Myself and a few of siblings did a lot too. That was 17 years ago. My Dad has been in a nursing home for 2 years and I visit him almost daily. I’ve seen so many older folks not being able to take care of themselves that I have made drastic diet, exercise, sleep, emotional and other health related improvements to my life. I don’t have 6 kids like my parents do, to take care of me later in life. I am 59, never married and no kids at all. The funny thing about relying on your kids to help you during old age is, I hardly ever see other visitors at my Dad’s nursing home. A nurse there told me many residents hardly ever have visitors. So I need to be able to take care of myself for a long time!!
I’m 59 now and got a very late start on financial independence. My plan is to work until I am 63 or 65, have about 1.5 million to leave in index funds until age 75, when it will hopefully be 3 million. From retirement to age 75, I want to travel certain parts of the world frugally and enjoy healthy foods and activities. I should have about $300,000 and SSN kicking in at 70 at about 40k a year for this.
I want to have plenty of money for when I am about 90 or so, if I do need to move into some type of assisted living or nursing home, I want it to be among the very best!! I hope my healthy lifestyle allows me to have a strong mind and body, for more years than most people do now.
Besides investing money, investing in ones health is just as important. I’m trying to figure our a blog that encompasses this idea and want to be a resource for others.
Thank you Sam and everyone for the community around this,
Bk
The no, no, no resonates with this INTJ too. It does help to know others feel the same way too.
Loving the INTJ tangent here. I’m another INTJ who’s currently coming to grips with that fact that my career may be over right now in my early 50s. I too was pegged as having low emotional intelligence because I had the audacity to speak up on occasions when I disagreed with something. About 3 years ago, my boss who understood me got pushed out into early “retirement” himself. The head of HR took this opportunity to tell the new boss that I was “difficult to work with” and “not collegial”. The new boss bought it and was the type of leader who is quite intolerant of any form of dissent, so I probably never really had a chance. I saw the handwriting on the wall and was ready to try something new anyway, so starting googling “how to negotiate a severance package” and that’s how I discovered this site. I bought the severance negotiation book and “got laid” (off) in Sam’s terminology. I had worked there about 15 years and received a very strong package. After a year of job search and some consulting work I landed another position. It only lasted ~2 years because my new boss was pretty much incompetent and I decided not to live in his chaos. I negotiated another soft landing. I could probably retire now with about a 3.75%-4.0% withdrawal rate, but I would have liked a greater safety margin. I’m finding that having left 2 jobs in the past 3 years has pretty much made my name mud in my current market (a mid-size midwestern city with around 1 million population where everybody in my field seems to know everyone else). Never mind that before that I had 2 jobs in 21 years – now I am a flaky, mercurial job hopper.
Living poor or growing up poor is horrible. Take it from a guy who’s lived there.
Fascinating math! There’s a ton to take into consideration before retiring no matter how old or young you are. But I think the younger you are the more factors and unknowns one should prepare for. And I don’t think I would want to have only a poverty level of income to survive if I was retiring young and had so many years left to live with so many unknowns.