Wednesday, October 03, 2007

Achieving Financial Freedom - I've Retired In My Forties

"I did it." - our three year old when accomplishing something.

Yesterday was my last day at the office. I've retired, in my forties. I can now say, "I did it." Although this was a monumental milestone, it has been surprisingly uneventful. Other than a couple of retirement parties, transfer of work projects, and multiple meetings with my financial advisor, everything has been mostly normal. Mainly, because we aren't planning any major changes (e.g. moving to a new retirement home) other than not working.

For now, I plan to spend more time with family and friends, especially my wife and child, and my mother and sister. Past that I don't have any specific plans, other than enjoying my time. However, in the next week, I will start planning my "third phase." :-)

Here's what I do know:

Financial status. My company's retirement plan is a defined contribution plan - i.e. it is not a pension. According to my financial advisor, our retirement and saving accounts will easily last another 50 years into our nineties. The calculation was done at 100% of current after tax salary and includes covering 100% of our daughter's college education. The Monte Carlo analysis shows a 92% probability of our next egg being sufficient, to provide 100% of our current after-tax income. For reference, over 75% probability is acceptable in most cases. The 8% of failures happen primarily because of low or negative investment returns in the first few years of retirement. So I will find out very quickly, in the next couple years, whether I need to return to work:-(

We will keep our home mortgage. We still have a mortgage on our home for about 45% of the estimated market value. In the past, I had written that we wanted to pay off our home mortgage before retiring. Our goal was to be debt free at retirement. Being debt free would reduce our monthly expenses by 20%. However, in the short term it makes more sense to keep the mortgage instead of using 2.5 times our after-tax income to eliminate it. Not paying off the mortgage gives us an additional buffer against a downturn in our investments in the next couple years. In addition, I will still be able to use the mortgage tax deduction, since our non-retirement account investments will be generating taxable income.

Consider a dream job. With salary income no longer being a key driver, both my spouse and I can consider looking for and applying to do our dream jobs. We can now work at what we love without worrying about compensation. However, at this time, volunteer work is not one of the options, since we have already done significant amounts of volunteer work in our younger days.

How did I do it? If it was an easy get rich plan that any one can do, I could sell it to millions for $19.95 plus shipping and handling :-) The reality is that it was a combination of preparation, planning, lots of hard work, perseverance, some sacrifice and little luck. Over the next ten Fridays, I'll publish a retrospective on how I got here. I hope it will provide some insights that others will find useful.

Here's the series:
  1. Our Childhood Preparation
  2. The Value Of Higher Education
  3. Making The Most Of My Job
  4. Lifestyle and Spending Choices
  5. Setting Goals, Developing Plans and Tracking Process
  6. Staying The Course
  7. How Luck Played A Role
  8. My Personal Finance Mind Tricks
  9. The Professionals We Used
  10. When Preparation Met Opportunity

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

Photo Credit: morgueFile.com, Kenn Kiser

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

23 comments:

Jorge said...

That's excellent! It definitely shows us younger folks that you can retire young and enjoy life instead of working 9-5 every day until 62 1/2 (or whatever the retirement age is).

Anonymous said...

What a blessing! That is encouraging...I can't wait to see the details about the planning. Many people prosper because they earn an income doing what they love. Did you absolutely hate your previous job or just not love it?

FMF said...

Good for you! I'm looking forward to seeing how you did it.

Super Saver said...

@ Jorge,

Thanks. I do look forward to life without "mandatory" work :-)

@ Anonymous,

Thanks for your comment.

Your question about hating or loving a job is not one I have considered much in the past. (I will now and make it a future post:-) Usually, I have been energized by the work I do, but I wouldn't say I loved it. In most cases,I've been fortunate. My jobs have enabled me to make best use of my skills, strengths and talents.

For me, it was a question of a work-life choice. I had come to a point where additional time with family and friends was much more important than time spent to earn additional money.

golbguru said...

Super: This is awesome news! Hearty congratulations.

I am going to envy you for a while, and then I am going to start working to see if I can accomplish something similar. :)

Also, I think now we can expect a lot more posts per day on your blog. :)

Super Saver said...

@FMF,

Thanks. Not surprisingly, the journey included many timeless personal finance principles such as "spend less than you earn" and "buy only what you need." It's proof that the principles really do work:-)

@Golbguru,

Thanks. Good luck on your journey. You already have a great start.

Hmmm... I may start posting 2 times a day on 2 or 3 weekdays. More posts than that and it may seem too much like a full time job :-)

The Digerati Life said...

Wow, congratulations SS! As I've mentioned to you, I am aiming for the exact same thing. Which means -- possibly next year for me??! My spouse is doing his own business, I'm working 9 to 5. I wonder if we'll be able to manage to do our own things by next year. That is our goal though!

no more spending said...

Congratulations! Looking forward to the retrospective.

FIRE Finance said...

Congratulations! That is an excellent news. We are looking forward to hear how you did so that we can follow suit.
Cheers,
FIRE Finance

the baglady said...

That is awesome!! I think I am still 10 to 15 years away. Your dream jobs seem pretty fun, too. Keep us updated on your retirement!

Super Saver said...

@ The Digerati Life,

Thanks and good luck on reaching your goals.

@ No More Spending, FIRE Finance, and Baglady,

Thanks. I hope my experiences will be helpful to you.

Moneymonk said...

I will be you one day !! Congrats, share your secrets

ispf said...

Wow, Congratulations!!!! It is really nice to read the relatively rare stories about "I did it"! Very reassuring and good for charging the batteries for the rest of us who are currently on the "will do it too!" track :)

Enjoy your retirement!

Ernesto the Insurance geek said...

Congrats on your success in your goals. I'm happy for you that you planned your escape so well. Enjoy your time with the wife & kids.

Super Saver said...

@ Moneymonk, ISPF and Ernesto,

Thanks and good luck on your journeys to early retirement. I hope sharing my experiences will be helpful to you.

living off dividends said...

how long did the planning phase last?

Super Saver said...

Living Off Dividends,

Looking back, planning wasn't a short distinct phase with a start and stop. Planning was done as needed (e.g. when there was a signficant change) to keep us going towards our goal. So there were numerous planning interventions throughout the last 20 years.

Anonymous said...

Congratulations on achieving such a milestone. I've noticed that most of your blog deals with your journey, but am curious if you feel your spouse has been a big help to you in achieving your goal. I'm assuming their income and agreement with a frugal lifestyle has had a significant impact on your ability to retire at this earlier age. If so, it might be nice to give kudo's to the team effort and I hope you recognize how fortunate you are to have such a partner.

Super Saver said...

@ Anonymous,

Thanks for the congratulations and your comment.

Without question, my spouse was an important partner in achieving financial freedom at an early age. For many reasons, I consider myself very lucky that she said "yes" to marrying me.

RetiredSyd said...

Wow! I'm right behind you--my last day of gainful employment is Friday--I'll be retired at 44--Yay!

I look forward to reading about your experiences adjusting to life as a retiree.

Super Saver said...

@RetiredSyd,

Congratulations and enjoy!

Ray said...

I just found your blog a few days ago, since I decided to start on a similar journey. You, Sir, are my role model. Retired in your 40s--how awesome is that!

Thanks for sharing your story with us!

myentrepreneurph.com said...

Wow, I want to mimic your accomplishments pal. I am on my mid 20's and I started my goal as early as 21. Hope to retire also by the age of 40 just what have you accomplished. Cheers to that story. Hope you can also visit my blog too. ;)