EARLY RETIREMENT may be your dream but may possibly come to you if you carefully plan and accurately execute your plans. It sounds luxury but isn’t at all. I officially retired at age 43 on August 1, 2016 and even was laid off before my early retirement came to me. I have never had a single executive or upper management job and still managed my early retirement execution.
Sooner is Better. Start Immediately
If you don’t have a financial plan for your early retirement, you need one immediately. I mean a good one. You will not be able to retire early without a solid plan. You should ask yourself how you support your finance after your retirement. The retirement finance usually takes a long time to mature itself. You really need to be patient and, of course, will see some progress (in $ amount) month after month and can call a quit once you reach your goal. If you have saved up a large sum, you only need 3 to 5 years. But many of the working class people including myself need more than likely 10 to 15 years to get that point. The sooner you start, the sooner you get there. The longer you invest, the more you can get.
I wish I could go back 10 or 15 years and start my early retirement plan.
Net Worth is Meaningless
Your total net worth doesn’t guarantee your retirement survivability unless you have more than enough ($10 million or so?). At the current low-interest rate (1.00%) with banks in this nation (USA), you can only earn $10,000 annually with $1 million. Fortunately, you owe no taxes with $10,000 ordinary income. But is it possible to survive with $833.33 a month? Most likely not.
There is another option. You have $1 million and can withdraw a small portion slowly. Let’s say you spend $2,500 a month, raise 2% a year for inflations, and earn 1% annually with a CD (certificate of deposit) or a savings account. You will run out of cash within 29 years. If you apply the famous 4% rule to your early retirement, your cash will be gone within 22 years. Early retirement requires at least 35 years of financial affordability.
Therefore, your net worth is meaningless. You should focus on your passive income that lasts forever.
Do Not Ignore Your Healthcare Cost
The government now requires everyone to have a health insurance plan and penalizes those who don’t have it. But the recent Affordable Care Act (ACA or Obamacare) doesn’t financially help people like us. I currently pay more than $600 a month for the bronze plan for my wife and myself. This cheap insurance only covers a month worth of my medication with a copay of $10. I can get a 90-day prescription of my medication for $10 without insurance at Walmart and don’t need my insurance to get my medication. It is really worthless. But the bottom-line is to protect our assets from any health catastrophe risk that could take us to all the way to bankruptcy. And you must include your long-term care in your early retirement plan.
Establish Cash Generating Machines
In the 1990’s, the interest rate was flying high like 6%+. We will not see a high-interest rate for many years. Even though the unemployment rate has been decreasing lately, our economy is not strong enough and cannot afford to raise the interest rate to 3 or 4%. We will not see it at that level for a while and need to find other ways to generate passive income to retire early.
There are many ways to generate passive income. Everyone has preferred methods to do so. I am very conservative (I studied mathematics, statistics, and engineering) and want to manage the risk of losing a significant amount. There are two methods I stick with regardless of the economic situations.
- Dividend Growth Investment – More tax-friendly
- Real Estate Investment – Less tax-friendly (except deductions)
- Some Cash (To add dividend stocks at any weakness)
The purpose is to consistently generate income over a long period of time. The stable income stream is more important than the high return. You also need to focus on your tax liabilities in order to maximize your spending ability.
You don’t need to hit a grand slam but should consistently accumulate singles like Pete Rose, Tony Gwynn, and Ichiro. The story of early retirement isn’t really sexy like Hollywood. The retirement investment should be so boring as It Pays Dividends mentions in his blog. But this is the way to reach and manage your early retirement.
It is your early retirement but not anyone’s. You manage your destiny and dream. As I officially retired on August 1, 2016, at age 43, you may retire from your career earlier than you may think.
You may be interested in some of my past blog post:
- Dividend Beginner’s Guide
- Can I Retire Now?
- 4% Rule – Is It Feasible?
- 10 Reasons Why I Fired My Financial Advisor
Early Retirement in 2019 (Already Retired)