Deferred Income Can Significantly Help Retiring Early

The first consideration of retiring in my forties is the financial aspect. My target has been to achieve retirement savings equal to 20 times my gross salary. At this savings ratio, I am confident that we can have enjoy a net income of that is 80% of my current net income.

However, one factor that I had not serioiusly included before was the impact of deferred compensation. Mine is in the form stock options, which have a 10 year term to expiration. If I should leave the company, I would need to cash out the options prior to leaving. If I would retire, I am able to keep the stock options until expirations. Keeping the options until expiration can make a significant difference.

I asked my financial advisor to evaluate a savings ratio of 16 times my gross salary and include my stock options, with retirement income of 88% of my current net. The monte carlo analysis shows a 90% probability of having sufficient funds to retire. This analysis conservatively included continuing to fund our daughters education for a private university 16 years from now. While 90% probability is the minimum confidence level I would accept, I am encouraged retiring in my forties is a financial possibility.

I am not too surprised that including my stock options will help my retirement situation. I remember stories of retired individuals who were able to live on just their deferred compensation income for a decade after retiring. For me, having deferred compensation may be a key enabler to retiring in my forties. Of course, there is always a downside risk that the stock options will expire worthless, if the company does not do well.

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

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