Your advice on retiring for a compulsive saver

[rj.phila]

Hello all, im wondering if you wouldn't mind weighing in on a dilemma of mine.....

I have been kicking around the idea of retiring(or semi-retiring) in the next 1-5 years, and wanted to get some feedback from folks as to what is a normal situation for an "early retiree".

in a nutshell, here are my financial specs:
annual expenses= ~26k
passive income(rental property income, fixed income investments, etc)= ~70k; obviously subject to long term interest rate fluctuations, thanks alot QE1 and QE2.
debt= 0

im in my mid-30's. i basically spent the last 13 years of my life working really hard(im self-employed) building up my business, and was raised to be very frugal, so i've always been cognizant of how and where i can save money. im not a "compulsive cheapskate guy", i.e. i have no problem dropping 100-200 bucks on a dinner for friends, dont save my pocket lint, but i HAVE been coming to terms with the fact that i think i have a disproportionate ratio of spending-to-income, i.e. i save HARD, so to speak. (i think this is actually causing a miniaturized early-30's-mid-life crisis, hee hee. no, seriously, i test drove a few roadsters last month, but its soooo hard for a guy raised on food stamps to even come to terms with being able to do that kind of thing. plus there's an inherent sense of guilt/self-worth/etc with the idea of buying a fun car when i know that a charitable gift would better serve society).

i dont hate my job, i actually enjoy it, but being that im self employed, i think i could in theory take some extended time off, or not work very hard for a year(or five? or ten?), and do a bunch of things that sound fun. might be having a kid soon too, so that could force my hand anyway on this.

ultimately, i think i have 2 questions:

1-do you think i should keep working hard, but just buy that beamer i've been eyeing? maybe treat myself to a vacation or two? or channel the funds into an early retirement of sorts?


2-(this is really the big one)-what does a mid/late-30's retiree LOOK like? most of my friends live almost hand to mouth. i never in my wildest dreams thought i would be in the situation im in, so frankly, i am posting here in large part to hopefully gain a sense of bearing.

thanks alot from a newbie. i know this was a meandering post, hope at least the 2 questions are concise!

[Mr Nice Guy]

From what ive read most people retire when they will have enough money to last them comfortably until death, comfortably being different in everyone's case.

Are you asking if you should retire or spend some money, or both? I am not in your position, but if I was I would keep working part-time while you are still youthful, spending time with your kid (if applicable,) enjoying your wealth in a reasonable manner, and donating time and money to charity. I don't know how secure your retirement savings are, how secure your passive income is? Can you really count on it forever? Those are some questions to ask yourself maybe? Good luck though let us know what you come up with.

Now I have some questions for you. Is real estate your main source of passive income? Did you own your own house before buying investment property? Any advice you could offer to someone who is just starting out in real estate? Any good reading material?

[disneysteve]

Well that's certainly a great problem to have. At a very young age, you already have passive income that is about 20K/year higher than the median American's total income. Theoretically, you probably could retire, but then what? Somebody who has worked that hard and assembled that kind of balance sheet isn't likely to be happy sitting around doing nothing for very long.

I understand the guilt thing about spending money. I think the key to that is to set a budget for fun. A common budgeting tool that we often talk about is the 50/30/20 breakdown. That is 50% of income going to needs, 30% going to wants and 20% going to savings. From what you've said, it sounds pretty clear that you haven't been spending anywhere near 30% on wants and have probably been saving a whole lot more than 20% while living on much less than 50%. I'd suggest tweaking your spending a bit. You may not get to the 50/30/20 point but work on getting closer to it than you are now.

To answer your questions:

1. If you can buy the Beamer new with cash without impacting anything else to any significant extent, go right ahead. If not, consider getting one a few years old that you can buy with cash.

2. I don't think you'll find many mid-30s retirees because of what I said above. Folks who get that successful that quickly are just naturally hard workers and aren't happy being idle. They might sell one business and start another. They might start up some type of charitable foundation. But they don't really retire in the usual sense of the word.

I do think you need to start enjoying some of what life has to offer whether that be travel or cultural events or charity work or collecting art or whatever you are into.

[rj.phila]

wow, these are great answers. disneysteve, thanks for that! the 50/30/20 rule is helpful. you're almost dead on with where i am now. i think ill look over my 2010 balance sheet at the EOY and basically try to treat that 30% as my fun money.

mr. nice guy: thanks. re: real estate-i followed a relatively simple format. buy house. live in it. pay off mortgage. buy new house, rent out old house. rinse, repeat. if i had advice, it would be this: start looking at property values as a function of the rental income they can yield, NOT as having an inherent value. there has been talk of a fundamental shift in how we see R.E. towards it being a durable good, not an investment tool. i wouldnt get in over your head, in short. R.E. is not my main source, its about 1/3rd; CD's are. as for reading, i'd talk to people. talk to as many people as you can, and try to get a picture of where they are, and what they think. it is NOT the easy road to a cash cow, that's for sure.

thanks guys!

[jIM_Ohio]

If you stop working, you risk depression or similar mental issues. Are you married?

I would advise this-

come up with a good spend and save ratio. Like spend 60% and save 40% (for example). Most normal people are doing excellent if they spend 80% and save 20%.

When you have 25X time your expenses saved, that money could last forever, depending on how you invest the money. At minimum it can provide you with 30-35 years of income which is inflation adjusted.

If you can stand the risk of hiring a person to help sustain your business, I would look into that as well.

[Kris Jarczyk]

Dealing with alot of successful people in financial distress, in this economy, my advice would be to live like you started out. Do not spend like you are financially stable because that may be taken away in a blink of an eye. You mention that you might be a father, many new and unexpected expenses. From your portfolio you are not immune to financial difficulties. Good Luck!

[TBH]

I don't know, I'm going to go against the grain here and say you should take some time off from work. Don't think of it as "retirement" because that sounds so final. Think of it as a sabbatical.

If you are planning to have a kid soon, maybe you should spend a year or two doing the things that will be harder to do with a kid. Always wanted to ride your bike across the country? That's harder with Junior in a trailer. Always wanted to run a marathon? Harder to train once you have a kid. Always wanted to learn to make furniture? Take some classes.

It depresses me to think of a 45 year career with no breaks. Most people don't have the luxury of taking a break, but you do. I would totally do it.

The other thing is that you could think about doing other work that would be more fun and not necessarily earn much money. I knew a guy who owned 30 houses and rented them out--and taught high school. He spent his summers buying and renovating houses. I knew someone else who quit her high-powered investment job and went to work in a flower shop. She owned several rental properties and just left that money alone and lived on her flower shop income.

Like many people, I have been sort of locked into a certain field because that's how I can make the most money at this point (without more schooling or starting over at the bottom). I sometimes fantasize about being able to work in a bookstore or be a hired hand for a landscaping company or do an internship at a botanical garden or something like that. If I didn't have to work, I don't think I would really _not work_ but it would be nice if it could be about the work more and not about the paycheck.

Also, re: having a kid--maybe you should try being a stay-at-home parent. You might love it. You might hate it. But how awesome is it that you could actually make that choice.

[rj.phila]

wow, im really glad i found this forum. thanks everybody! i dont have alot of people around me who are fiscally sound like i am to talk to, so this is very helpful!

[QUOTE=jIM_Ohio;276417
When you have 25X time your expenses saved, that money could last forever, depending on how you invest the money. [/QUOTE]

thanks alot for this, jim. this is the kind of metric that is EXACTLY what i was looking for. those kinds of figures give me a concrete bearing for how to think about these things. yea, i think that it is time to start thinking "outside the job"

thanks kris-i purposely omitted the larger(i.e. more active) parts of my portfolio, as im still getting comfortable talking about those kinds of things. i have healthy savings, and i earn 6 figures via my actual job. i mentioned the passive income, as it should be-in theory-not so vulnerable to fluctuations, like an actual job is.

TBH-i appreciate the advice. i think im going to basically choose 2011 as a year to continue working, but not work SO hard. take my 2nd vacation in 10 years(terrible, right?), and do some stuff for fun.

as an aside, this is a really helpful thing for me-my ingrained modesty has kept me from discussing alot of this stuff with anyone, so just talking it out is beneficial to me.

[disneysteve]

i think im going to basically choose 2011 as a year to continue working, but not work SO hard.

Similar to how I suggested budgeting your fun money, I would also suggest "budgeting" your fun time. Don't just tell yourself that you are going to work less or take a vacation. Actually choose your destination, pick the dates and book the trip. Make it real. Pay for it upfront if possible. Do what you need to do to force yourself to use that time.

In addition to vacation, find something non-work-related to do on a regular basis. Take a class somewhere. Get subscription tickets to a local theater. Start volunteering at your house of worship. Whatever is appropriate for you. That will give you a reason to leave work by a certain time on those days when you have outside commitments.

[Slug]

Similar to how I suggested budgeting your fun money, I would also suggest "budgeting" your fun time. Don't just tell yourself that you are going to work less or take a vacation. Actually choose your destination, pick the dates and book the trip. Make it real. Pay for it upfront if possible. Do what you need to do to force yourself to use that time.

In addition to vacation, find something non-work-related to do on a regular basis. Take a class somewhere. Get subscription tickets to a local theater. Start volunteering at your house of worship. Whatever is appropriate for you. That will give you a reason to leave work by a certain time on those days when you have outside commitments.

This is excellent advice for many of us. We work hard and are fiscally responsible often to the detriment of fun and hobbies which require indulgence at times in order to have a balanced life.

I found that having automatic debits flowing into a fun account that I could not use to fund Roth IRA's or other savings goals to be very useful. The rule is it must be used for fun. My allotment is $250/mth. In the course of this year, I have managed to spend almost all of it while my DW has managed to accumulate over $2k. I tell her jokingly that it is evidence of how much more fun I am than she is

I also sit on the board of a local non-profit and on the advisory board for my credit union in volunteer positions. Finding other ways to give back with your time creates a greater justification to overcome your guilt in using your money for you.

[EEinNJ]

It's commendable you're in such a good financial position at your age. It would be tempting to step off the merry-go-round. There's a few things that make full retirement when you're young inadvisable. One is inflation. Another is rising costs of health insurance. If you're planning on kids, keep on working! I heard a statistic that raising a kid through college now costs $250K on average.

Not to be a real bummer, but another hard fact of life is that setbacks can and do happen- serious illness, disability, death of a loved one, a fire or other disaster. The more secure you are financially, and in your work, the better able you will be to cope and recover should something unfortunate happen.

[krantcents]

I retired when I was 38 years old. I had income property and a business that allowed me to live the so called good life. I never made so much money! I returned to the normal work world after 7 years because it did not fulfill me. I think it is very important, particularly when you are a hard charging entrepreneur to replace goals. For 13 years you worked to have this independence, now what? Your life needs purpose.

[LivingAlmostLarge]

Are you for sure having a kid? Maybe enjoy being the parent at home. I would have to say it's interesting. I go back and forth with working and not, but I will say this stepping off the ladder can be harder than you think!

[nick__45]

You can retire but you have to move somewhere that is very cheap to live on. Eastern Europea as well as South America, Mexico, and Asia are pretty cheap to live in. That is where my friend retired to and he's in his early 50s.

[disneysteve]

You can retire but you have to move somewhere that is very cheap to live on.

He already has passive income of $70,000/year. No reason he would need to leave the country to live on a 70K income.