Friday, December 07, 2007

Our Journey To Financial Freedom #10 - When Preparation Met Opportunity

In early October, 2007, I announced that I had retired in my forties. As promised, I am writing a Friday series on "How We Did It," of which this is segment #10. ( #1 is about our childhood , #2 is about education, #3 is about working, #4 is about lifestyle , #5 is about goals, #6 is about staying on track, #7 is about the role of luck, #8 is about my personal finance mind tricks and #9 is about the professionals we consulted.) This segment is about how preparation enabled us to take advantage of the opportunities which created the possibility of early retirement.

I wish I could write that I had planned meticulously to retire in our forties and executed the plan with excellence to make it happen. I am not that good :-) The reality is we were tracking pretty well against retirement in my fifties. However, because we were solidly in the upper percentiles of readiness, a couple things going in our favor enable us to consider and then take the retirement much earlier.


Here are some of key elements that were tracking well for us:
  1. Savings outside of retirement accounts. As a result of good financial management, we have been able to save about 20% of salary income. While part was put into retirement accounts, we also put money into taxable account which can be used before we are eligible to withdraw funds from tax deferred accounts. Also, I have been taking bonuses as deferred income, which is expected to paid in the first 10 years of our retirement.

  2. Creation of satisfactory quality of life. My spouse has been the COO (Chief Operating Officer) for our family since she quit her job when we transferred overseas. In the role, she manages the entire household, covering daily needs, maintenance and repair. For the past 4 years, my spouse has created a comfortable lifestyle while maintaining constant living expenses, even after arrival of our daughter.

    For reference, my spouse is exceptional at making sure routine maintenance (e.g. home, yard, car) is scheduled, essential needs (e.g. good health, nutritious cooking, clothing) are met and a high enjoyment of life (e.g. family vacations, entertainment) is maintained. Doing so often incurs a higher cost upfront, and I think avoids unexpected costs in the future which result from neglect. In addition, she has managed to increase the amount and quality of services while keeping costs the same.

  3. Simulation to build confidence. For the past four years, we have been experimenting with the amount of spending needed for an acceptable lifestyle on a long term basis. Through trial and error, we have identified a "sweet spot" and have been able to come within +/- 10% of a spending target on a monthly basis for two years. Thus, we are pretty sure of the amount of money we will need during retirement, including saving for our daughter's college education.


Here were a couple events that happened in our favor:
  1. A stock market recovery. At the end of the tech crash in 2002, I was starting to think it would be tough to retire in my fifties. My company retirement account had was still down about 33% and my taxable investments were down about 10%. In addition, interest income was only about 10-20% of pre-2000 years. Retirement didn't appear to be a near term option.

    However, the stock market has recovered, with the Dow hitting new highs. Similarly, my company's stock has recovered and achieved new highs. In addition, interest rates have risen to historically reasonable levels around 4-5%.

  2. Lowered retirement age. While our normal retirement age is 55 or older, occasionally the option to retire earlier with all benefits is offered. This option can become full retirement if one has access non-retirement income until 59 1/2. Otherwise, people either decline and stay or take the option and find a new job.

Because of our preparation, we were able to give full consideration to early retirement when the opportunity presented itself. To be clear, there was and is still some risk, as the stock market is currently very volatile and could decline. If the market does fall precipitously, I may be among those retirees that need to go back to work :-(

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 Reaping the Rewards , check back every Friday for a new segment.

Photo Credit:, JJM

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

Copyright © 2007 Achievement Catalyst, LLC


S. B. said...

This is a great blog. I wish I had found it earlier. I'm also hoping and planning for a very early retirement, and I believe I could learn a lot from someone who is a few years ahead of me and has already taken the plunge.

I look forward to reading your ongoing posts.

Super Saver said...


Thanks for your kind words. I look forward to hearing about your success.

Todd Snyder said...

I'm curious to know your current position with this awesome achievement - with the changes in the economy since you wrote these posts.

Any updates?

Super Saver said...


As might be expected, the recession that began in December 2007 did make our early retirement more challenging. Our savings declined by 40% before starting to recover. Fortunately, our savings began above the minimum needed for retirment. Even so, we reduced expenses, payed off our mortgage, and did some part time work to reduce the withdrawal rate. For now, our investments have recovered sufficiently to stay in retirement. If there should be another signficant drop in the stock market, I may need to "unretire."