Monday, September 13, 2010

Really, You're Retired?

Are we planning on ever working again?  No.  How is that possible?  We've been asked this question in many different ways.  The answer is that we were fortunate to start our careers without any college debt, we were reasonably well-paid in the high-tech sector for over a decade, we do not have kids, and we are happy with a lifestyle that most people would find intolerable.

The seed of early retirement was planted during our year-long roadtrip during 2003.  After our year off, we went back to our engineering jobs, bought our first (and only) house, and bought lots of stuff to fill it.  After returning to work as a software engineer, I had a gnawing sense that I was trading my happiness for a life of meetings and sitting behind a computer for 10 hours a day.  While Scott was still finding some satisfaction from his mechanical engineer job, I was determined to find a way to use my brain to help others.  Nursing sounded like a reasonable option.  Also, I felt that a nursing career could offer us a way to travel (my ultimate goal) with the easy option of working intermittently. During the two summers I had off while I was in nursing school, I read every book I could get my hands on related to early retirement and financial planning. I spent time organizing our money and analyzing our spending.  We had been so busy making money that we never took a look at what we had, and what we actually needed.

My favorite book and our guide for early retirement is "Work Less, Live More" by Bob Clyatt. His premise is simple: if your investments grow more than you spend, you'll never run out of money. Specifically, he advocates a highly diversified portfolio of mutual funds and bond funds (mostly index) that assumes a long-term average appreciation of 4%, adjusted for inflation.  Obviously, a target return of 4% is not a get-rich-quick scheme. It is a conservative approach to capital preservation. The best part, is that it is based on statistical analyses performed over data from the past 100 years (engineers will appreciate Clyatt's approach).

There are obvious risks associated with our plan.  What if the past doesn't predict the future, and our money does not appreciate by anything close to 4% adjusted for inflation? What if one of us gets very ill or hurt?Well, one thing we are trying to do is to spend even less than our 4% budget allows. This is especially important in the early years of our retirement (analogous to saving early when working), as this will provide a buffer for the later years. If one of us gets ill or hurt, the other one can always go back to work, either temporarily or long-term. This is not ideal, but it is hardly the end of the world.


Unknown said...

Way back in the 90's, the book "Your Money or Your Life" by Vicki Robin got me started thinking about retiring early.

May your investments be fruitful!


Unknown said...

Thanks for this post! I have been wondering HOW you are doing it. :-) I wasn't so disciplined, think I will have to work again, and probably soon. But I will definitely check out that book. Thanks!!