* I’m in the process of moving, so my friend Purple from A Purple Life wrote an epic guest post for today. She has a not-so-harebrained-scheme to retire next year on half a million dollars. I admit that I wondered how exactly she was planning to pull it off when most early retirees save at least $1M. Here, she reveals her extraordinary plan to retire early (at age 30!) *
We’ve all heard the proclamations: You’re going to run out of money in retirement because of X. Whether it’s an underperforming market, robot automation or climate change, more often than not, these headlines in mainstream media seem to be meant to strike fear into our hearts. “Do I have enough?! Will I have enough if I work another year?? When will I have enough to be completely secure that I will never run out of money in retirement?!?”
As you might have suspected, there is no such thing as completely secure. There is no guarantee that anyone’s retirement will work out as planned or at all. There are risks involved in every decision and our job is to choose our path based on what makes the most sense to us and what allows us to sleep at night.
So I’m retiring next year with $500,000 and I’m completely comfortable quitting my job after I’ve amassed that amount. Here’s why:
Overall I’m fortunate that my life preferences also happen to be choices that help keep my expenses low while giving me a happy life. I think of each of these choices as levers that allow me to regulate how much I spend. Let’s dive into a few of them.
I’m lucky that my parents have their own nest egg and have been happily retired for over 4 years. This $500,000 only needs to support me – not a husband, a pet or any children down the line.
Based on my spending during the last few years in the expensive cities of Seattle and NYC, I spend between $17,000 and $20,000 so a portfolio of half a million should sustain me, especially since, when retired, I will not need to live in some of the most expensive cities in the country.
I have never dreamed of owning a home. I don’t know if it’s my natural skepticism, fear of commitment or both, but I’ve always looked at owning a home (for me personally) as a chain around my ankle instead of the idyllic ‘roots’ people talk about – and this is before I even saw the numbers!
Luckily the finances behind owning a house in the expensive cities where I’ve spent my adult life, have further cemented my opinion: I never want to own a house. I heard a quote recently that made me laugh at its accuracy and cringe at its harsh truth:
“Rent is the ceiling. A mortgage is the floor,”
Meaning that rent is the most you will pay while your monthly mortgage is the minimum.
Knowing how much my rent and utilities are every month gives me comfort. Knowing that I can email my landlord when something breaks and have it fixed with no sweat off my brow or money out of my pocket, makes me feel warm inside. I know a lot of people in the financial independence community (the lovely host of this blog included!) that are fantastic DIYers and mechanical thinkers. I sadly do not belong to that group.
When something is broken, I don’t want to have to call multiple contractors, figure out the cost, negotiate, schedule their visit and then pay an unknown amount afterward. At a recent happy hour, a friend lamented that she had to pay a plumber $500 earlier that day to come to her house…and they didn’t even fix the problem! I’m way too protective of my free time to give my energy and cash to a pile of bricks.
And this leads to one last reason I have never been interested in owning a home: it is (basically) immovable. My life plan involves almost constant travel and having a house sitting empty or having to manage AirBnB guests from afar is not my idea of a good time or a happy retirement.
As I mentioned in this post, I grew up in Atlanta, GA and its lack of public transit and sidewalks (my parents are just getting them NOW) coupled with its horrendous traffic quickly put me off using cars as my main form of transportation.
When I drive through the suburbs where I grew up, I feel trapped because you literally are trapped unless you have a car – no sidewalks, no buses, no trains. The only saving grace has been the proliferation of Uber, but using rideshares is exorbitantly expensive when crossing the widespread burbs.
So after escaping the gridlocked hell that is Atlanta’s 18 lane highways, I decided to only live places where I do not need a car to get around. This had the added perk of dropping me in locations that had sidewalks to feed my love of walking and public transit to go anywhere I want without having to fight for parking.
This decision has also had the added benefit of dropping my lifestyle costs while giving me the walking and fresh air filled life I want. I intend to keep this habit up in retirement and supplement in rural areas with car sharing services and rental cars as I do now.
But What If Large Unforeseen Expenses Pop Up?
The giant purple elephant in the room when discussing retirement for US citizens is our insanely expensive healthcare costs. This is the most often cited unforeseen expense I hear when discussing any nest egg in this country, but of course I have a plan:
Overall, if I am diagnosed with a disease that requires continuous treatment, I will move to another country with more affordable medical care (which is basically any other country…) However, if something happens to me while I’m in the US or I’m unable to travel, I will be carrying global insurance for those worst-case scenarios, such as breaking my leg or getting hit by a car. After my bills are paid I can reassess my plan and if I need to shift anything, which leads me to:
In case you haven’t heard the term before, geo-arbitrage is moving somewhere where the cost of living is less. In my case I will be looking for places where I can have a similar or better quality of life for less than I spend on that life in the US. Doing this introduces the ultimate spending flexibility: less cost for the same lifestyle. There are several countries I love that are on my travel list for the first few years of retirement and fit the bill, such as Mexico, Costa Rica and Thailand.
But Does The Math Even Work?
When running scenarios in cFIREsim, it shows that my $500,000 would suffice even in the worst market downturns of the last 147 years — even for a 70-year retirement. All it would take would be decreasing my spending to $16,500 during down markets, which is an easy feat for me if necessary.
The past obviously doesn’t predict the future, but even I was surprised that reducing my spending by such a small amount in a few cases could lead to such a high success rate despite everything our country has been through in the last 147 years.
Based on these calculations, I would have been safe retiring in any of the last 147 years and in many scenarios, I would have finished my 70-year retirement with a great deal more than I started with (inflation adjusted).
Oh and I forgot to mention that this calculation does not assume a spending ceiling – meaning in good years I can spend more than $20,000 if I so choose. That’s a concept I first read about in the awesome book Work Less, Live More which touts a flexible withdrawal rate of 4% of your current portfolio every year (instead of 4% of your starting amount as the Trinity Study uses). I have tweaked this idea to suit my purposes and was happily surprised at the optimistic result.
So those are my spending levers. The life I love already has some built-in efficiencies and I have plans for how to combat unexpected expenses in the most vulnerable first 5-10 years of retirement, but there is another set of levers to consider.
Going Back To Work
Unlike a lot of traditionally aged retirees that quit because of health issues or are forced out due to their age or ability – I can easily get another job if necessary. I don’t delude myself to think it would be at the same rate, since I would have been out of the workforce for a while, or even at the same level, but it would be more than I need to live on.
If I’ve learned anything after getting 6 jobs in 7 years it’s that it is not very difficult for me to find a job – even if it’s not in my field. There are so many ways to make money and the amount I need to live on (especially if I leave the US) is fairly small. Though outside of having a failed retirement and going back to full-time work, there is another possibility: that I will earn money accidentally in retirement.
“If You Earn Money You’re Not Retired!”
…Says who? Every retiree I know earns at least a little bit of money doing things they enjoy. Even my parents own a rental property. When I quit my job next year I’m looking at (hopefully) 70 years of retirement.
I never said I would never make another dime. I’m not planning on it and am not intentionally trying to (because: see my large amount of laziness), but based on other early retirees, it happens sometimes.
If it does, I wouldn’t be going after this money, but accepting it for something I enjoy doing and would happily do for free. While I am not factoring earning any more money (or collecting social security) into my plans, the possibility would of course also decrease my chance of retirement failure.
So I have several levers I can pull. In my mind, I have the ultimate flexibility because adjusting my life will not interrupt anyone else’s and I enjoy the variety inherent in change.
After reading the above you might think I’m a little off my rocker. Yes I have Plans A, B and C, but there’s no way this will work right? I share your concerns and that is exactly the reason I read everything I can about the risks of early retirement. The likes of Early Retirement Now and Our Next Life have made me seriously think about my plan from many angles and adjust accordingly. They make great and valid points about the risks inherent in pulling this trigger and I take what they say very seriously, but I also weigh those risks against another one (queue morbid organ music): Death.
Engaging Data creates absolutely amazing data visualizations and one of them struck me right in the heart (see below). It shows the possibility of my portfolio balance being at different levels during each year of retirement and compares it to the probability of me dying during that time. That grey ‘death’ section sure is large and imposing – and I suspect this longevity data is based on white female numbers – from everything I’ve read, me being a black female decreases my long living prospects further.
To be frank, I’m not afraid to be a failed retiree. My absolute worst case scenario is that I have a bad sequence of returns in the first 5-10 years and/or large unforeseen expenses that I can’t recover from and I have to go back to work. I will have just had a relaxing, multi-year sabbatical after a decade of working my ass off. Joel from FI 180 has a great quote that perfectly encapsulates my feelings on the subject:
“My worst case scenario is everyone else’s every day scenario.”
I’m not afraid to fail, but I am afraid to spend the most active years of my life attached to a computer doing someone else’s bidding. I am afraid of running out of time with the people I love. My main objective in retirement is to spend more time with my loved ones and I can’t do that if they’re not around. Tomorrow is never guaranteed. Everything is a risk and this is the level of risk I am comfortable with.
Aside from attaching myself to the level of risk I’m comfortable with, I have another reason I feel confident in my plans. I will be a 3rd generation early retiree. My Mom retired at 55 and her parents retired at 50. The world has been through so many changes during that time and they have always been able to figure it out.
In retirement my only ‘job’ will be to plot, plan and discover how to keep my retirement going. That’s it. All I need to do is solve the challenges that come at me and after watching the last two generations of my family do just that with a lot more against them – I feel confident I can do the same.
So what do you think? Am I going to fail? Am I saving too little? Let me know in the comments!