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Tuesday, September 23, 2014

All The Time In the World

Posted by Tim Stobbs on August 21, 2014

If you ask any aspiring early retiree why they want to retire early the answer is often about freedom.  Yet another common answer is related to time.  We want the major of our time to suit our own purposes, which seems very similar, but in some ways is a bit different.

Time is really a subjective experience, it goes fast or slow depending on how we view it. Work can feel like it was twice as long was it really was or when you are enjoying what you are doing hours can vanish in what seems like minutes.  Also feeling busy comes out of your perception of time as well.  So if you have that awful feeling of being frantically busy, keep in mind that it is mostly in your head.

The major issue with our time beyond our basic perception that there isn’t enough of it.  Which ironically exists only in our head.  So the other way to look at the world is just reverse your basic perception and think to yourself: I have all the time in the world.  I know that sounds incredibly nuts, but if you do start adjusting your basic thoughts about time you tend to take those odd moments and actually enjoy them.

For example, I was recently driving home later in the evening and the clouds turned that perfect pink colour in the sun set and it for a moment reminded me of one of my favorite Monet paintings.  So I looked ahead and behind me on the road to confirm no one was near me then I enjoyed the view for a few seconds.  I took the time to enjoy the moment.

The other major thing to take back your time is to restructure what you are doing with it.  So often we end up trying to cram way too much stuff into our days and feed that feeling of being frantically busy.  So the solution to this is be honest with yourself and develop so priorities and stop trying to do it all.  Cut out 80% of the crap you were doing with your time and you will suddenly have lots of time to do the last 20%, which is often the most meaningful anyway.

So for me this meant I stopped writing endless to do lists.  Instead feeling guilt over things I thought I should be doing I’ve realized that if I just write down the few most important things I need to do in the day I can typically manage to get all those items done and feel better about things.  I accept I might forget the odd thing, but mainly I’m just forgetting the crap that would just stay on the list for weeks and not get done.  So how important is something if I can safely ignore it for weeks: the answer is not at all.

I also got honest with myself and stopped trying to do too much at once.  I realized that relaxing is just as important as doing something for long term health.  So yes I do a few items on a weekday after work and then I typically spend the last few hours relaxing reading a book or watching a movie with no guilt at all.  I stay in the moment of what I choose to do and actually enjoy it more.

In the end, you don’t need to retire to get more time.  You have enough time right now if you allow yourself to use it and accept you can’t do it all.  Even with an extra 52 weeks of 40 hours you aren’t going to be able to do it all. So start adjusting your life now to enjoy your time.

So how do you make yourself feel less busy?  Or what have you stopped doing that wasn’t that important?

Capital vs. Cash Flow

Posted by Dave on August 19, 2014

An early retirement plan is an inherently risky thing to take part in. The risk in following through with the plan is that money will run out before you are readily able to make more of it, but there are still bills remaining to be paid. On the other hand, there is the risk (although less detrimental) that I could be one of those guys that drop dead at 52, while walking up a steep hill, or shaking my fist at a bunch of punk kids to get off my lawn.

My wife and I live fairly cheaply – beyond my golf habit and my wife’s desire for warm vacations, we really don’t have expensive lifestyles. Beyond the possibility of health problems causing significantly increased monthly expenses, I wouldn’t expect much in the way of lifestyle inflation to take place.

I like measuring sticks to show progress. In the past, I have written about slowly knocking off individual bills through investment returns – slowly taking chunks out of monthly expenses until they’re all taken care of (with a buffer). From my standpoint, it will be difficult to tell myself to keep working (especially on a full-time basis) at the point when all of my annual expenses are taken care of. The risk at that point will be that my investment portfolio gets wiped out and I’ll end up sitting in a dark, cold house eating beans and rice.

I’m sure I’ve read this somewhere else, but I’m not sure who to attribute it to, but living off a portfolio of 20+ diversified stocks and bonds does seem to be a lot less risky than my current dependence on a paycheque. Even though this pay has been continually deposited for over a decade, and I don’t expect it to end, it is dependent on me continually showing up and working for the next 10 or so years.

If I have adequate cash flow to cover my lifestyle at age 45, with enough of a buffer built in to cover major expenses within a diversified portfolio how much risk exists? If, for example, I have $750,000, yielding annual returns of $25k, and my household expenses are only $20k – should I work until I get to $1 million?

How long would you stay working? How did you arrive at your comfortable “exit number” ? Did you err on the side of caution, or plan on exiting the workforce as quickly as possible?

Free at 40

Posted by Tim Stobbs on July 31, 2014

As long term readers on this blog know I started planning my retirement to be ‘Free at 45′, yet the reality has been that target has been slowly dropping for a number of years.  The last official calculation I did back in 2012 (see the series on the side bar under Popular Posts) came out with me being able to leave work at 42 with cash to spare.

So I’ve had this idea in the back of my head, could I be ‘Free at 40′ instead?  After all things have been going really well and I wondered how different would that look like if I decided to go for it.  So I did look into it and I’ve decided I really like the idea, even if it means some significant changes to the original plan.

The major shift that occurs if I do Free at 40, is the fact I go that early I’m much more in the realm of semi-retirement rather than closer to full retirement as with the original Free at 45 plan.  I’ve always had some work for me in these plans the question as always been to what degree do I feel comfortable depending on future work income.  The Free at 45 plan only used work income to cover vacation spending or other purely fun items.  The money wasn’t needed to pay any day to day expenses.

Yet as I grown I’ve come to realize I don’t really mind doing some work, as long as it isn’t too much.  So I am willing to trade some future work at part time to cover off some expense if it means I can get out of full time work sooner.  So for the longest time I had trouble finding where I could be comfortable on depending on some work income.

In the end, I approached the solution backwards, I picked the age of being done work at 40, or just under four more years.  If I do that I estimate I can save approximately $600,000 by that time, which is about $100,000 less than my original $700,000 in the Free at 45 calculations.  Which on a yearly basis, means I’m short about $4000 a year than my original budget (so all the other costs like food, property tax and all the house bills would be still fully covered from investment income).  In practical terms, the amount is the money I would be saving on an annual basis to eventually replacement my car and future house repairs.

So a solution to provide some buffer on those amounts is to save a slush fund for approximately five years or $20,000.  Thus giving me the ability to cover any immediate expenses the may come up.  I’m still also attached to my backup plan of having a few years of living expenses in a second slush fund to allow me to avoid taking money out of my investments in a few really bad years.  This would require another $50,000 to be saved.

These slush fund may very well be in place when I turn 40 since I typically do better on my savings and investment returns than I predict.  If not, I estimate I could save those in just over six months, which would turn free at 40 into free at 40.5…I think I can handle six months if required.

So you might be wondering why bother with Free at 40, when Free at 41 would likely be damn close to the original plan?  Because in short, I’m sick of making excuses to keep working full time.  I’m ready now to move on and do different things with my life and the only reason I’m sticking around at the moment is to save money.

I noticed in life it is easy to make small amounts of money doing things so some dependence on income doesn’t scare me. I’m tired of finding reasons to stay working full time when more often than not I’m noticing how things can turn out just fine anyway.  Humans are extremely good at adapting to our circumstances so I don’t fear doing this at all.  I will still have a good life.

So what do you think of ‘Free at 40′?  Brilliant, insane…somewhere in between?  I welcome all feedback on this idea.