My Personal Finance Journey

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The Risks Of Early Retirement

Contributed by mm | September 27, 2006 7:54 PM PST

It seems that the I can realize my early retirement dream earlier than I thought. If we can continue to add $150,000 a year to our coffer, our net worth will break the 7-figure milestone by the end of this decade. In the financial endgame plan are a million dollars in net worth plus $50,000-strong a year from semi-passive business income a year, that will be more than enough to afford our current lifestyle. Should I start to prepare my farewell speech at the 2009 Christmas party?

I cannot tell whether it is the anxiety to explore the new things in life in a few years, or my inborn risk-averse tendency, but the closer I am to my financial independence goal, the more I'm worried about the risks I'm taking if I choose the early retirement route.

If I am to retire at 33 as planned, there will be another fifty or sixty years ahead of my wife and me. That is an awfully long timespan. While by math our nest egg should work alright, no one can really say for sure our family wealth will survive our longevity if we ever live to see the second half of the century. I remember when I grew up in Shanghai in the 80s, US$10,000 were considered a huge asset that could buy lifetime prosperity with a change. After 20 years of rapid development and economic progress (and inflation of course), ten grand can hardly buy the size of a bathroom in the downtown. Even if I can sustain the absolute amount of wealth, will $1 mllion still be relevant a couple of decades from now?

This Post Has Received 14 Comments. Share Your Opinions Too.

Flexo Commented on September 27, 2006

I think you mean "coffer," not "coffin." Otherwise, it's a very morbid statement.

2million Commented on September 28, 2006

Maybe you should double your goal to $2 million :-).

Or enjoy an early retirement now and plan on eventually earning some additional income later in your retirement. I actually like this idea because it helps you plan for inflation. If inflation really jumps and avg wages doubles - it could be really hard to compensate with your investments - but if you plan on earning additional income later in your retirement via a low stress, part-time job, you will be able to benefit in someway from this inflation....

Jeff Commented on September 28, 2006

Yep, I figured that as your net worth skyrocketed you would change your mind about retiring. The bottom line is that $1 million isn't enough to last on if you are in your 30's, even with $50k of passive income.

Anyway, why quit in your 30's when you could work through your 40s or even 50s and become a multi-millionaire. Is $10 million in 20 years possible for you? After following your blog for many months I believe it is possible for you MM. Good luck on your journey.


Q-Ball Commented on September 28, 2006

I used to think 1.5 million (not in assets but in liquid investable income earning assets) was enough to retire at 40. I have recently decided that I underestimated the impact of inflation especially since it is such an unknown.

Given the pace at which you are saving in your current job I think it would be wise to continue on well past 1 million.

My goal is actually to eventually get enough real estate property earning rental income to use that as my guage against inflation. I figure if wages double, real estate will have to atleast double to keep up with it as will the passive rent income it throws off. Thus if I can get enough real estate to provide the passive income to live off of then it should provide the hedge against inflation that I need.

Of course skyrocketing medical and education costs for the kids is also another thing that is hard to plan for since it is a huge unknown.

mactonite Commented on September 28, 2006

I sort of depends on what your plans are after retirement, assuming that you do reach your goals and take the plunge at that age. What might your plans be? Sitting around with a fishing pole might be nice for a while, but the reality might be different than what you imagined. I myself would get terribly bored after not too long. I would only guess a person of your obvious intelligence might also, too. You seem to be very thoughtful of risks. As you point out, a flat out retirement would seem to have at least some exposure to uncertainty vs. a part-time gig or small business. Then again, if you do get bored (or broke!), you could just start working again or pursue some other passion.

But in general, you planned and executed so far an excellent plan. It called to mind words told to me by an old family friend, a doctor. At one point he was posted at a miliary base in Europe. His patients were, too often, older people who had scrimped and saved until their 70's and beyond for that retirement trip to Europe, only to find that they were so old by the time they took the trip that they ended up too old to enjoy it and in the hospital with a heart attack or broken whatever. Kudos to you for planning retirement and actually being young enough to enjoy it!!

Sounds like planning of the type and level that got you to this point in the first place is in order. To me, pursuit of a passion would be the most delicious thing about not having immediate money worries. I guess it all depends on just exactly what bangs your particular gong, so to speak. It's a great problem to have, though.

In any event, best of luck in figuring it out. I don't know what brought me to this site in the first place, but I have thoroughly enjoyed it. It's so much better than the idiotic bs that is the focus of too many blogs unfortunately. Once your goal is reached, I hope you'll stay with it. Thanks, and keep us posted.......

DrChunger Commented on September 29, 2006

It is never enough. Isn't that the point? As your income and savings increase, your taste, needs and standards go up. That's just a plain fact. Retiring at 33 with $1MM also depends on where you intend on living. If you go and live out in the midwest in a small town, undoubtedly, that will be enough.

It does, however, sound like you are used to at least being close to a city. Whether you're able to compromise on this is a rather important question, imho. I live in the northeast whereas it is difficult to imagine that $1MM would be enough. i suppose i could do it if i didn't go out to eat very often and was ultra frugal with my travel / vacation... but i want more... :)

further, with children, and having a 3 year old, i imagine that by the time they go to school, end to end, it'll cost on the order of $200k or more for each child. it nearly is that already! sure, we can all talk about getting the kids to pay for their own education, etc.

it all depends on what you want to do. the other thought is that even if you "retire" at 33, i suspect you'll take some time off but then get to working a bit. the problem, however, is that if you let your skills lag, especially in the software industry, you'll quickly become irrelevant. just sitting around all day is pretty boring....

HolyCow Commented on September 29, 2006

None of my friends who've retired early with sufficient assets to back it up have regretted it. In fact, most have become busier after retiring than before, and wondered how they found time to work before they retired.

Retiring with $1million + a $50k a year income is like retiring on an $80k a year income (pre tax). That's pretty substantial and should support a good lifestyle anywhere you choose. But don't forget that $80k a year in 2009 isn't as much as $80k a year now.

I'm planning my own retirement at a $100k a year budget to maximize flexibility. That would require about $3million in a diversified portfolio.

chenpang Commented on September 30, 2006

If you dont have your primary residence fully paid off, 1M is not much money. A realistic amount is 2M and house paid off for retirement in 2006 dollars.

Will Commented on September 30, 2006

damn..that makes you like 28-29 at the've done pretty well for yourself.

Jason Commented on October 1, 2006

All the discussion about early retirement excludes the key costs of children. Expensive little habits that may not be part of your calc's but others should certainly consider the costs before blowing out their retirement candles.

wayne Commented on October 7, 2006

What return are you expecting on your money after retiring and how would you invest your money? It's a lot harder to steadily get 8% than you might think. If you were to lose 15% in any of your 40 retirement years (which is almost certain if you have even 50% in stocks) along with a 4% withdrawal rate, you'd lose 20% in one year. Do you think you could still invest "for the long term" when that happens? I do not think $1M is enough.

Curly Tree Commented on October 9, 2006

Before I had kids, I thought a couple of million was enough to retire on. With kids, their tuition (college expenses too), raising them with all the current doodads they need, plus a busy household that requires more running power, things changed for me. I used to save over $100,000 a year. Now I just can't, with the new budget. So I have decided to focus on making the money, more so than just saving it. So even with substantial assets, you never know, these can still be at risk, so I doubt I'd retire even if I thought it was possible.

John Fulton Commented on October 29, 2006

1,000,000 isnt going to cut it. Figure that you can withdraw 3% a year for the rest of your life and your nest egg will last the lifetime and keep up with inflation. 1m is only 30K a year. You said you'd make 50K in addition, ok so thats 80K. Hmmm, your choice but that wont work for me.

Robert Commented on November 9, 2006

What is with this kids thing - tuition? Let them pay for it. What is it with people paying their kids way through college. That teaches them nothing other than entitlement and how to party on mom/dad's dime.

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