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Saturday, March 25, 2017

Another Early Retirement Story

Posted by Tim Stobbs on January 20, 2010

It’s hard to find people that have actually retired at 45, so when our commenter, deegee, mentioned that he had done it I quickly followed up on getting a guest post from him.  Enjoy. – Tim

I retired in October 31, 2008 at the age of 45.  I worked for 23 years in the actuarial field, the first 16 of them full-time and the last 7 of them part-time.  I had an awful commute from where I lived on Long Island (New York) to Manhattan for the 16 full-time years and to Jersey City (New Jersey) for the 7 part-time years.  My company became a for-profit company in 1997 and I took a big company stock payout (about $300k) in 2008, invested it in a high-yield (not quite junk) bond fund to generate enough money (along with my other considerable savings) to cover my expenses with room to spare. I have an IRA from my old 401(k) which has bounced back nicely since late 2008.  After 23 years, it has nearly $300k in it and it is waiting and growing until I can tap into it in 14 years.  I have a frozen pension waiting for me, too, at age 65.  So, all I have to do is live off my dividends for 14 more years until the “reinforcements” start arriving.  Even if I have to tap into principal in 10 years that is okay. I checked this out with a financial adviser. Playing with numbers is something I became very good at in my 23 years in the actuarial field.

I have been debt-free since 1998, having paid off the mortgage on my co-op apartment. I found a decent and affordable individual health insurance policy last year. I bought a new car (a Toyota Corolla) in 2007. My monthly expenses are both affordable and mostly predictable. I am single and am childfree, the latter my biggest reason for being able to retire.

The last year have been great. No more alarm clocks, no more trains, no more commute, no more office stuff (I actually liked the work most of the time, though), no more lousy lunches in New Jersey. Even working two days a week from mid-2007 to my final week at the end of October, 2008, was an awful experience, mainly because of the tiring, annoying, and often sickening commute.

Once I began working part-time in 2001, I was able to reclaim my life. I resurrected an old dancing hobby (at night, something I had no energy to do while I worked full-time) and began doing volunteer work in several area schools as part of the school Scrabble program. Otherwise, I come and go as I please, including spending time with my ladyfriend of 5 years. I am enjoying my second year of retirement and look forward to many more.

My first step toward early retirement unknowingly began when I was 20 years old. That year, I made the important decision that I did not want to ever have children. That step, I believe, makes it much easier for someone to retire early. Children are a huge financial burden, so unless you feel the benefits of having them offset the costs, then don’t have them.

Here are some other reasons I was able to accumulate the large sum of money I needed to retire early.

(1) I never smoked anything (i.e. cigarettes). Now I don’t want to start a debate on smoking. I am only mentioning the money I did not spend by smoking. Today, depending on where you live, it will cost you about $7 a pack. One pack a day will cost you about $2,500 a year. That’s a lot of money available to invest.

(2) My attitude on paying interest on non-mortgage debt is this: It is a waste of money. I paid off 60% of my student loans before the 6-month grace period ended. I had already saved up some money from working and still had some money left over in an old custodial account I used to pay for some of my college tuition and room/board. Back in the 1980s, the tax deductibility of personal interest was being phased out, so there was no indirect subsidy of my student loan interest any more. I have always paid my credit card bills in full each month.

Similarly, I saw paying off debt as a surefire way to get a better return on an investment. For example, if I am using money earning 2% in a bank account to pay off a student loan with an interest rate of 8%, then I am automatically earning a 6% improvement on my money. I am aware that I should keep a “Rainy Day Fund” of several months but I was not as insistent on that back in the 1980s.

Another example of avoiding interest was to pay cash for my cars and avoid the costly car loans. I bought my first one in 1986 (for $6k) when I did not have a lot of money but because I had just moved back with my parents for a few months (and paid them rent), I knew I would rebuild my account balance quickly (and wasn’t too concerned with a “Rainy Day Fund” at the time, either). By the time I bought my second car in 1992, I had more than enough money to pay for it with cash while maintaining a “Rainy Day Fund”. Doing good (and inexpensive, despite no Internet back then) research on that second car saved me a lot of money not having to buy another car for 15 years.

I refinanced the mortgage on my apartment in 1992. Back in 1989, interest rates were very high, especially for co-op apartments. Banks don’t like making loans for co-ops. I shaved nearly 5 points off my mortgage interest rate and saved $200 a month. It took only about 18 months to recoup the closing costs.

(3) I was lucky enough to start investing in stocks in the mid-1990s just when the market was beginning to take off. I was tipped off to a good stock mutual fund by an investment advisor in 1996. I took some of my gains off the table and used them to pay off my mortgage in 1998. This made me debt-free. At that time, I was working full-time so one bi-weekly paycheck more than covered all my monthly expenses, so I was able to quickly replenish the account whose value had doubled in the 4 years I was in it up to that point. I was basically investing with the “house’s money” for a while. When I wasn’t buying cars, apartments, or paying off loans early, my personal savings rate was between 20% and 64% every year.

(4) I was lucky that my company went from not-for-profit to for-profit in the late 1990s. They set up an Employee Stock Ownership Program (ESOP) and I was given lots of shares during my peak earning years (1997-2000) before I switched to part-time in 2001 and earned fewer shares. But it was my years of hard work which earned me above-average raises in the 1980s and 1990s, resulting in many extra shares proportional to my annual compensation. The ESOP exploded in the 12 years I was in it, so when I cashed it out last year (before it tanked a bit), I still cleared a big chunk of money (nearly $300k) after taxes.

(5) I do live a frugal lifestyle. I have local, low-maintenance hobbies including my volunteer work.

(6) While I still had dental insurance coverage, I had some expensive dental work done in 2007 and 2008 before it disappeared in 2009. This saved me a good chunk of money. My dental bills, now all out-of-pocket, have decreased a lot since I retired (but I still visit him every 6 months)

(7) I cook my own food, so I rarely go out to eat. But if I want to go out and eat or bring something in, I can do it. Same for my ladyfriend (who is not wealthy). This saves a lot of money over the years.

(8) I spend little on optional monthly services. Due to a good break from my cable TV provider, I pay little for it. I am not stealing services, as they are fully aware of the channels I am receiving (which do not include any premium channels). I do not own a cell phone, as I have no interest in it. Therefore, the total monthly charges for phone+cable+internet are well under $100.

(9) I found an individual health insurance policy for less than $500 a month (for 2009). The premium did rise by 20% for 2010. I hope the pending health insurance reform will keep the premiums increases in check.

Put all these things together, and you have a financial plan for retiring early. Get rid of debt, keep the monthly expenses low, buy a small place to live, keep the car for a long time…..combine that with hard work at my job and some luck with the ESOP and good personal investments…….and some luck by earning a lot while the market was booming in the 1990s…..and carefully project out a long-term financial plan with the help of an investment advisor…..(and be childfree)…..and you have a recipe for retiring at 45.

Thank you for reading,
deegee

Comments

20 Responses to “Another Early Retirement Story”
  1. Mama Zen says:

    Okay, so visibly I am driving on the wrong road to early retirement… got 2 kids, lots of debts that I am slowly but regularily paying off, almost no savings…

    But you know what? I’m okay with this. Because I am thinking a lot about doing something else that work for the past weeks. I also admit that I am reading Tim Ferris 4 hours week book, wich helps me slowly considering not taking early retirement, but instead planning lots of short retirement period throughout my active life

    Anyways, I do have a very good pension plan with my current employer, and possibility to take sabbatical periods with financial arrangements.

    So, I think you did a very good job to get to your goal of early retirement. But in my mind, right now I dont think stopping working early is something I would like to do… working less, having break time to ressource myslef…

    The thing is to decide, do and manage the consequences of your choices :-) hope I will!

  2. Robert says:

    Thank you for sharing your very interesting story! Obviously, the money is all taken care of. I get the sense that there’s more to retirement than not worrying about money. You mentioned that you dance and volunteer in the schools. What else keeps you busy in retirement? What makes you feel fulfilled?

  3. deegee says:

    Robert, I have been doing more reading lately. I like to read. I also play a baseball tabletop simulation game with cards and dice. The cards I bought in the 1970s and 1980s but that is when I followed baseball more.

    I don’t need a lot of stuff to keep me busy. Just not having to travel to New Jersey even two days a week is a HUGE improvement to my life. Eliminating a negative is just as important as finding a positive.

  4. kidful says:

    I like your story just one nit pick: kids. They are no more expensive than food – some people eat expensive and unhealthy food, others don’t and have an advantage because of it. I was child free until four years ago (I am 49 years old :-) heh) and I will likely keep working in order to get dental benefits etc. and because I have to be around town anyway so why not generate income? Everyone in the family is firing on all cylinders financially including our son, who lives very frugally but enjoys life immensely. We live *less* expensively with him around!

    I can tell you that hanging around the house with your kids, cooking your own meals, and reading library books is very healthy, cheap and entertaining.
    It’s been 4 years and we’ve spent zero (yes, nothing) on clothes, toys, books (you can this stuff for free) and health care is reasonable in Canada.

    Our kids won’t have cel phones and iPods or cable TV(we don’t) and will start accumulating retirement saving space (RRSP) as soon as they can (no lower limit as long as you file an income tax return for your paper route money). As with a lot of things in life most people seek out expensive shortcuts so they can feel better off without really thinking about it. They *especially* do this with their kid: we don’t.

    Good luck with your retirement – don’t rule out having kids … if you need to you can always move to Canada where I guess it is cheaper :-D

  5. deegee says:

    Kidful, the definition of childFREE is NEVER wanting to have kids, and never actually having them. You were only childLESS or maybe a “fence-sitter.” I knew at age 20 I would never, EVER want to have kids. My health and general well-being would be much worse if I had them because of the overall stress and noise they would add to my everyday life.

    And I dispute that kids are cheaper than food. Think about the added living space, health insurance (here in the U.S.A., at least), their food, toys, and lastly, college education will cost you versus your own food. I pay about $3,000 a year for food. Any of the above (except for toys) will cost more than that.

    I already cook most of my own food and read lots of library books. It is part of my low-cost living style. That can be done with or without kids.

    Having kids is a lifestyle choice, no different than skiing or collecting stamps. But if you want to have kids, and you can afford them, then go for it!

  6. Ray says:

    Hate to nitpick but it sounds like a pretty boring life. No cell phone, no TV, no restaurants? No kids, ever?? Can’t a monkey manage a $300k gift and invest it anywhere to live a minimal expense life until the pensions kick in? At least you admit half of it was luck and the other half sounds boring. Not to knock some of your frugal ideas which seem solid, but cmon.

  7. deegee says:

    Ray, did you read what I wrote above?

    I have a TV(#8), just a good deal on my cable setup. I don’t have a cell phone but I do have a land line (#8), just like everyone did not too long ago. I cook most of my own food but I go out to eat once in a while (#7). And how does no kids equate to a boring life? If I had kids my life would suck, and that is much worse than boring could ever be, not that my life is boring. How does not having a cell phone translate to a boring life?

    A monkey could not invest $300k and find a somewhat obscure bond fund which generates more than enough to live on. I resent your comparison of my money management to that of a monkey. Pretty rude, Ray.

  8. Ray says:

    Well, I was serious (kinda). Can’t anyone just take a $300k gift and invest in the XIU ETF (top 60 TSE), take the $7500/year in divvies and $30k/year in cap gains and live a life of property tax, basic cable and wired phones? I mean isn’t the hard part actually building the first $300k while enjoying a fun life in an area you enjoy with family that you love? What exactly are you trying to show off here?

  9. deegee says:

    I don’t think anyone could take $300k and have the discipline to invest it for an early retirement. Many people would spend it or find other ways to squander/waste it and not be able to retire at 45.

    I don’t want my annual income depending on the erratic cap gains of a stock mutual fund. That’s why I have it in a bond fund which yields about 6.5%, giving me about $24k in dividends in 2009. I need to run surpluses in these early years because my dividend income won’t rise as fast as my costs will. But once I turn 60 I can tap into the IRA which has about $300k in it. Then my pension and Social Security will come in and add to my income stream.

    I had built up about $300k of my own non-retirement funds in the 23 years I was working. This paid for anything I wanted to buy all those years, from an apartment to cars to paying off my mortgage and the occasional airplane trip. Never having to worry about whether I could afford to buy something was very comforting. Some of that personal $300k was used to pay the taxes on the cashed-out $300k ESOP

    In the 1980s, I had a busy life after work during the week. But in the 1990s, my company expanded its standard work day by 30 minutes and that greatly reduced what I could do when I got home. All those years of commmuting took its toll on me which is why I switched to part-time in 2001 so I could resurrect the old dancing hobby I last did in the 1980s and start a new activity, the school Scrabble volunteer work. I enjoy both things. Not working at all enables me to do more of the dancing which starts in the evening and I can’t do it if I had a long day at the office followed by a tiring commute home. The school Scrabble stuff is during the day so I can’t be working the same day I do that.

    I have lived by myself since 1986 which is just how I wanted it. I never wanted to have children and have no real desire to marry but am not dismissing the possibility at some point. I am a family of one for now, just the way I like it (although I have a ladyfriend). My level of fun rose a lot in 2001 (when I stopped working full time) but the part-time work with the lesser commute still wore me down in the next 7 years. Once I knew I had enough to retire in 2008, I went and did it so I could do my other treasured things without a juggling act with my old job.

    What I am trying to show off here is that with the combination of luck, skillful investing, frugal living, and crucial lifestyle choices (i.e. no kids), one can retire at 45. Many of my former coworkers have more in the ESOP than I ever did, but because they have many kids to support they can’t retire (but one childfree coworker did retire in 2008 at age 55). Many childfree people I know are not burdened with the huge expenses of raising kids but don’t have a $300k ESOP to cash in. What I have is both of these things (low expenses and a the $300k ESOP) which together enabled me to retire at 45.

  10. Canadian Dream says:

    @ Ray,

    Sorry I have to say your comment was rude. Lifestyle choices are a huge factor in the ability to retire young, but each of us live differently. So don’t knock someone’s choice. For example, I did want kids and I’m still trying for 45.

    In regards to luck, I’ve never seen a early retirement story yet that didn’t include some ‘luck’ it’s also refer to as opportunities. We all get them in life. The how, when and what you do with it is always different. Some people blow them and other use them to their best advantage. You choose what works for you.

    Tim

  11. Mama Zen says:

    @deegee

    You’re right, having children is a choice, and as all choices we can make in our lives, some of us take good and bad decisions.

    Some people have children and, I regret to say that, should’nt have em. Some don’t and should (and sometime crave to) have some. It is about choices, and, as investments, about ‘luck’ too.

    The important thing is to live in a lifestyle that fits you, and you seem to have acheived that, nice to you :-)

    All the best for your future in this new part of your life, it was great to open yourself to all of CD readers!

    PS: yes, in some ways living in Canada is cheaper, but it also depends in wich province you live… il live in Quebec, so have a lot of taxes to pay… but that’s part of my choices too ;-)

  12. fred says:

    “I’ve never seen a early retirement story yet that didn’t include some ‘luck’”

    I’ve been following a great many “early retirees” and have to say this is the main criteria for retiring early. The advice given by these people reminds me of the old joke: get a hundred men to flip a coin, removing those that don’t turn up heads. Eventually you will have a man who has flipped only heads, and he’ll write a book on how to do it. Derek Foster’s books don’t explain how he made his money (he gambled big and turned a huge profit, if he lost we’d never have heard of him).
    Likewise DeeGee was lucky his company moved from Non-profit to profit…obviously he profited well from this. Likely regardless how frugal he was, without that stroke of luck, he’d still be a wage slave like the rest of us. I don’t recall seeing a change from non-profit to profit being part of the selection criteria for a job.

    Congratulations to DeeGee on his luck, but as someone to emulate to retire early…
    fred

  13. jacqjolie says:

    It seems to me that many people will take what worked for them in an area and then say that that’s “the way” or the only path. When in reality, there are many ways of reaching a goal, especially one of early retirement.

    Don’t despair Mama Zen, I was in debt up until I was 35 years old and am still on track to retire completely a couple of months before my 45th birthday and am semi-retired now at 44 (working about 15 hours a week now). Single parent w/two kids, so it’s do-able if you want it bad enough.

  14. Mama Zen says:

    Thanks jacqjolie :) right now my main goal is to wipe out my debts… I can’t see the day I will retire… but I DO see the day I’ll take a sabbatical year OH YEAH :D !!!

  15. Hazy says:

    I think if you want retire really early and you have an average income,then you need to do things a little different than everyone else.
    If you have a higher income,then maybe you can be “normal” and retire early at the same time.
    Normal early retirement is at 55-60,doing it in your 40’s isn’t even on most people’s radar.

  16. deegee says:

    Fred, while I was lucky to be able to cash out the ESOP, the ESOP itself did not come without a cost.

    My old company made several changes from 2001-2007 to cut its costs once it began to be more bottom-line oriented. These included the following:

    (1) Phasing out its pension benefit in 2001. It grandfathered the pension for older employees (not me), froze it for everyone else (me), and did not include one for new hires. It put in a mediocre cash-balance program but a few years later phased that out, too, putting a profit-sharing program in place for new hires. Therefore, any additional years I worked after 2001 did nothing for my pension.

    (2) Phased out retiree health benefits. Like with the pension, older employees would get them when they retired, but younger ones would not. And the company picked up a smaller share of the total premiums.

    (3) Moved the company from Manhattan across the Hudson River to Jersey City, New Jersey (before 9/11/01). This saved the company money but worsened the commute for most of the employees, including me. My commute already sucked so this made it intolerable on a daily (and part-time) basis.

    (4) Expanded the standard work week from 37.5 to 40 hours for most employees (not me because I was working P/T by then, thankfully). There was no pay raise to compensate, of course.

    (5) The company used its stock in place of cash for its 401(k) matching funds. This meant 40% less stock at the end of the year for our allocations.

    These moves increased the company’s bottom line, and therefore, its almighty ESOP share price. So the only way to get any benefit from these costs was to quit the company and cash out the ESOP.

    Had my old company not put in an ESOP, I likely would have continued working P/T for a little longer. Maybe 12 hours a week, maybe 20, I am not sure. Depends on how miserable I would be. Then again, my commute probably would have been more tolerable (i.e. not to Jersey City).

    Also likely is if I had retired, I would have cashed out all or part of my 401(k) – not when the market sucked in 2008-early 2009 – taken the hit in taxes and penalties, and added it to my own $300k+ savings to generate the income I needed to live on. I would have a smaller 401(k) but perhaps a bigger pension in my later years to offset it.

  17. deegee Congrats at being Free @ 45

  18. Bridget says:

    deegee,

    I am 44-yrs old and have been making some major lifestyle changes (save more and live more frugal) so that I can retire at 55yrs. I wish I had done more of what you did so that I could have retired earlier. Your post is an inspiration for me to keep on keepin’ on……..congratulations!

  19. Nice work Deegee. There are a number of ways to retire early. You made a plan and took action…that’s the difference between you and a lot of people who never reach this goal.

    I started late (after losing a few years in the military, a delayed university degree and a new career – financially speaking). I also have kids, but I am working my own plan. Age 45 would be a challenge, but it’s not impossible.

    Again, congrats!

  20. deegee says:

    ThinkDividends, Bridget, and Tim, thanks for your kinds words and I hope you can all attain your early retirement goals one day.

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