Welcome To The Real World
"Those who wish to succeed must ask the right preliminary questions."
- Aristotle, Metaphysics
Like many people, I dreamed and schemed for years about early retirement. While there were definitely many times that I did enjoy working, I never did feel like I quite fit into Corporate America. Partly I didn't like the lack of control, and partly I didn't like the games that were played, and partly I didn't like the daily repetition of tasks. But mostly, the problem was that work interfered too much with the other things I wanted to do in life. Imagine that!
Over the years, I attempted to reconcile the situation by experimenting with different work schedule options: self-employment work; part-time work; contract work; etc. None of these options worked very well for me. I also thought about whether I could somehow make enough money to live on by doing the things I really wanted to be doing. This seemed unlikely. Like a lot of people, I felt trapped in the corporate rat race.
As I continued working, one of my hobbies was learning about investments and how they worked. At first, there was just the allure of learning something new and of making some money. But the investing field turned out to be quite interesting to me, and I even considered a career change. After a while, however, I wondered if investing held something more: a chance to escape the corporate hamster wheel early. But by this time, I realized that most serious financial professionals never see it that way. Prudent investing is viewed as a good way to ensure that a normal retirement at age 65 will probably go smoothly, but early retirement is generally considered unattainable and perhaps even a bit reckless.
Eventually I learned enough about finance to realize that most of the investment and retirement advice that is repeated ad nauseam by the media is based on assumptions and averages about the population at large. I attentively read the endless stream of articles reminding me to eliminate morning lattes, pay off credit cards, and invest in a 401(k) plan. And of course, the articles all explained to me to accumulate enough savings to replace 80% of my preretirement income, and to withdraw 4% of it each year in retirement.
To be sure, a small portion of such advice was simply wrong. But more often than not, the advice was not so much wrong as it was oversimplified. I suppose this is how things have to work with the mass media. Writers cannot customize the information for each individual situation and often don't (or can't) explain the rationale and the assumptions behind the rules of thumb. This is really too bad, because this turned out to be the key to making the whole thing work for me. Once I understood the assumptions in many of the generic formulas and rules, I was able to customize a real world financial plan that worked for my specific situation.
If you stumbled onto this site and are hoping to find some sort of magic formula or silver bullet for making your investments work, you have come to the wrong place. In fact, an overarching theme to all that I have learned is that there is rarely a magic formula for anything in life. Why should it somehow be any different for investment and retirement planning? In spite of all the magazine and newsletter covers, we all know there are not "7 easy steps" to retirement or "5 sure things" for your investment portfolio. We get sucked into reading these articles because we wish it were so, even though we know full well it is not.
The real world is complex. It rarely fits neatly into formulas and rules. The achievement of anything difficult usually requires a lot of study and work and discipline. Nevertheless, difficult does not mean unattainable, and eventually through perseverance, a workable strategy for early retirement fell into place for me. Ultimately it was tweaked enough so that it now moves forward like clockwork.
Note that my retirement plan is no "get rich quick" scheme. First of all, it is not quick. It took about 10 years of hard work and disciplined saving to get to this point, and I've still got another five years to go. Secondly, I won't be rich by the standards of many people. Lastly, it is no "scheme" in the negative sense of the word suggestive of a scam or a contrived trick. There is nothing novel about what I am doing, and I have no dispute with 95% of the standard body of knowledge in finance. Rather, I use this knowledge in a practical manner by applying it to my specific situation in order to achieve specific goals.
The key is critical thinking. Ask the preliminary questions. Challenge assumptions. Make sure to understand your world, your self, and what your investments can and can't do. Be certain your plan is based on the real world - your life situation - not on rules of thumb that capture a statistically good outcome for the average person in the world.
As I advance toward my goals, I have come to realize that there are many people who are curious about how this all works. I decided to set up this blog to organize my thoughts and offer it as a resource to others. But please understand that my plan cannot be your plan. My life is not your life, and my goals are not your goals. This blog will only provide a detailed explanation of my retirement plan and the rationale behind it. Still, I hope that understanding the process of how I put together my plan will perhaps enable you to gain insight into your own state of affairs. Whether your interest is early retirement, or "normal" retirement, or simply curiosity of how someone else approached it, I hope this will be of some help to you.
I intend to update this blog once or twice a week with more details about early retirement and my progress towards it. Unlike many self-professed investment and retirement gurus, I don't have all the answers. I am learning new things all the time and many times I make mistakes. But on the whole, things are working out pretty well so far.
It's been quite a financial journey thus far, and I hope you'll join me to see how the rest unfolds. Maybe along the way, you'll begin your own journey as well.
Over the years, I attempted to reconcile the situation by experimenting with different work schedule options: self-employment work; part-time work; contract work; etc. None of these options worked very well for me. I also thought about whether I could somehow make enough money to live on by doing the things I really wanted to be doing. This seemed unlikely. Like a lot of people, I felt trapped in the corporate rat race.
As I continued working, one of my hobbies was learning about investments and how they worked. At first, there was just the allure of learning something new and of making some money. But the investing field turned out to be quite interesting to me, and I even considered a career change. After a while, however, I wondered if investing held something more: a chance to escape the corporate hamster wheel early. But by this time, I realized that most serious financial professionals never see it that way. Prudent investing is viewed as a good way to ensure that a normal retirement at age 65 will probably go smoothly, but early retirement is generally considered unattainable and perhaps even a bit reckless.
Eventually I learned enough about finance to realize that most of the investment and retirement advice that is repeated ad nauseam by the media is based on assumptions and averages about the population at large. I attentively read the endless stream of articles reminding me to eliminate morning lattes, pay off credit cards, and invest in a 401(k) plan. And of course, the articles all explained to me to accumulate enough savings to replace 80% of my preretirement income, and to withdraw 4% of it each year in retirement.
To be sure, a small portion of such advice was simply wrong. But more often than not, the advice was not so much wrong as it was oversimplified. I suppose this is how things have to work with the mass media. Writers cannot customize the information for each individual situation and often don't (or can't) explain the rationale and the assumptions behind the rules of thumb. This is really too bad, because this turned out to be the key to making the whole thing work for me. Once I understood the assumptions in many of the generic formulas and rules, I was able to customize a real world financial plan that worked for my specific situation.
If you stumbled onto this site and are hoping to find some sort of magic formula or silver bullet for making your investments work, you have come to the wrong place. In fact, an overarching theme to all that I have learned is that there is rarely a magic formula for anything in life. Why should it somehow be any different for investment and retirement planning? In spite of all the magazine and newsletter covers, we all know there are not "7 easy steps" to retirement or "5 sure things" for your investment portfolio. We get sucked into reading these articles because we wish it were so, even though we know full well it is not.
The real world is complex. It rarely fits neatly into formulas and rules. The achievement of anything difficult usually requires a lot of study and work and discipline. Nevertheless, difficult does not mean unattainable, and eventually through perseverance, a workable strategy for early retirement fell into place for me. Ultimately it was tweaked enough so that it now moves forward like clockwork.
Note that my retirement plan is no "get rich quick" scheme. First of all, it is not quick. It took about 10 years of hard work and disciplined saving to get to this point, and I've still got another five years to go. Secondly, I won't be rich by the standards of many people. Lastly, it is no "scheme" in the negative sense of the word suggestive of a scam or a contrived trick. There is nothing novel about what I am doing, and I have no dispute with 95% of the standard body of knowledge in finance. Rather, I use this knowledge in a practical manner by applying it to my specific situation in order to achieve specific goals.
The key is critical thinking. Ask the preliminary questions. Challenge assumptions. Make sure to understand your world, your self, and what your investments can and can't do. Be certain your plan is based on the real world - your life situation - not on rules of thumb that capture a statistically good outcome for the average person in the world.
As I advance toward my goals, I have come to realize that there are many people who are curious about how this all works. I decided to set up this blog to organize my thoughts and offer it as a resource to others. But please understand that my plan cannot be your plan. My life is not your life, and my goals are not your goals. This blog will only provide a detailed explanation of my retirement plan and the rationale behind it. Still, I hope that understanding the process of how I put together my plan will perhaps enable you to gain insight into your own state of affairs. Whether your interest is early retirement, or "normal" retirement, or simply curiosity of how someone else approached it, I hope this will be of some help to you.
I intend to update this blog once or twice a week with more details about early retirement and my progress towards it. Unlike many self-professed investment and retirement gurus, I don't have all the answers. I am learning new things all the time and many times I make mistakes. But on the whole, things are working out pretty well so far.
It's been quite a financial journey thus far, and I hope you'll join me to see how the rest unfolds. Maybe along the way, you'll begin your own journey as well.
2 comments:
This is a great blog. I contemplate the topic often. I've done similar research, but I must say, not quite as extensive as you (e.g. it seemed like too much work to calculate my SS benefits at different retirement ages, it's nice to see it won't significantly drop).
I'm financially in a very similar situation. I'm 42 and Net Worth 1.1M; I've been thinking I had to make it until 50, but you've given me so reasons to rethink that and maybe I can shave a few more years off. I also came across an article from 2004 that had statistical information on average retirement spending and how it drops off significantly between 55 and 75.
I'm curious to know your age, your goal Net Worth at 45, and your expected annual living expenses at 45.
My problem won't be retirement money, but rather, how to make it from whenever I retire until I'm 55. Most of my assets are in my house (30%), or 401K/IRA/Pension. I won't be able to downsize my house until age 60 because we love it and I'll probably have kids living at home until then. I'm interested in how you plan to bridge the gap (are your assets more liquid, do you plan on taking sepp, etc) in a future blog.
anonymous,
Thanks for your comments. I am also curious about what I can learn from others who are in a similar situation! I will try to address some of the topics you brought up in your comments.
In the mean time, you can find a little of the information you asked about in
one of my comments to another post.
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