A 23 year old who wants to retire young.

KeithFlournoy

Specifically I live in Wisconsin, kind of out of the way area. My $500 rent is a pretty nice place. A decent 2 bedroom 2 bath room condo costs about 200K USD, and I'd probably be able to rent out the other bedroom for $400-$450 or something. The only thing I'm worried about is that I don't want to buy a place and then decide a year later that I'm moving, because then I'll have just lost a bunch of money on the house.

hugheskevi

I came up with schedule, with a few different options for amounts I'd need to spend in retirement (I think 30K is most realistic), all the numbers are in 2014 dollars so when you see 5% return, that's real return, not nominal.

Over very long periods you should be working in earnings terms, not real terms.

If inflation is 2% and earnings growth 4.5%, the value in real terms will be half the value of earnings terms after 30 years. To put it another way, would you be happy retiring on 100% of the average wage, only to be living on half the average wage 30 years later.

Also, there's no wife or kids in the picture now, and I don't expect there to ever be really.

Life is going to be full of shocks. Planning is important, but a key part of planning is flexibility to enable plans to be reshaped when required...which will be several times.

I have two images here

They suggest you die at 85? As others have mentioned, unless there are good reasons your planning should be at least mid nineties.

Savings patterns are very unlikely to be so linear, at age 23 I'd expect quite a lot of rapid salary progression before reaching a level where escalation is more in line with prices or average earnings.

Big spend items, eg house purchase, marriage, travel, honeymoon, children and so forth will all lead to periods of different consumption and saving.

If you don't think you are going to get married, etc, then it is worth thinking about what you want out of life. That might be early retirement, but it might be taking advantage of being able to travel the world when young, or whatever.

Savings and tax systems go very well together, and there is great benefit in designing savings to take full advantage of all incentives.

if someone can save 20% of their income and retire at 55, why can't I save 65% of my income and retire at 40? I don't really like working and I don't have expensive tastes.

At extreme early retirement, the impact of one more year working (and one less year saving) is very significant, as so few working years are supporting so many non-working years. It is worth considering whether the plans are sub-game perfect, ie, at what point would you realistically decide to walk away - for me (I also plan very early retirement) one extra year working increases lifetime income by about 10%. So if I plan a fairly frugal retirement, in reality I would just be tempted into 'one more year' given the incentives I would face at the point of retirement.

ViolaLass

Why not work out what you really want to do with your life (apart from retire, that is) and chase that?

KeithFlournoy

hugheskevi wrote: »

Over very long periods you should be working in earnings terms, not real terms.

If inflation is 2% and earnings growth 4.5%, the value in real terms will be half the value of earnings terms after 30 years. To put it another way, would you be happy retiring on 100% of the average wage, only to be living on half the average wage 30 years later.



Life is going to be full of shocks. Planning is important, but a key part of planning is flexibility to enable plans to be reshaped when required...which will be several times.



They suggest you die at 85? As others have mentioned, unless there are good reasons your planning should be at least mid nineties.

Savings patterns are very unlikely to be so linear, at age 23 I'd expect quite a lot of rapid salary progression before reaching a level where escalation is more in line with prices or average earnings.

Big spend items, eg house purchase, marriage, travel, honeymoon, children and so forth will all lead to periods of different consumption and saving.

If you don't think you are going to get married, etc, then it is worth thinking about what you want out of life. That might be early retirement, but it might be taking advantage of being able to travel the world when young, or whatever.

Savings and tax systems go very well together, and there is great benefit in designing savings to take full advantage of all incentives.



At extreme early retirement, the impact of one more year working (and one less year saving) is very significant, as so few working years are supporting so many non-working years. It is worth considering whether the plans are sub-game perfect, ie, at what point would you realistically decide to walk away - for me (I also plan very early retirement) one extra year working increases lifetime income by about 10%. So if I plan a fairly frugal retirement, in reality I would just be tempted into 'one more year' given the incentives I would face at the point of retirement.

Thanks hugheskevi,

So, to address the points, I understand what you're saying about earnings rate being above inflation meaning that over time, even though my withdrawals are inflation adjusted, they won't be for the increase in wages. I don't think I care but I guess I don't really know. I feel like if my income is enough to live on comfortably then I'd be fine, but I guess I haven't lived long enough to really say.

I figure if I have to replan then I will. But having some sort of initial plan, and having the chinks worked out of it, will mean I can work the chinks out better of any replanning that needs to be done.

To be honest, I thought 85 was reaching. I tried a few of those life expectancy calculators. I got a variety of answers, but most of them were late 60s/early 70s. I thought that sounded too young but I pretty doubtful I'm going to be 90-something. I didn't find any numbers for living to 95, but it looks like only 1 in 6000 lives to be 100. I'm probably not going to be that one.

Though as for what I want out of life, it literally is to sit around and do nothing. Eat, drink, and smoke, and sit around is about all I do in my free time. I'm not big on travel or any sort of "interesting" activities or anything. Yes, I am a very boring person.

As for the marginal value of an extra year, yes, I'm seeing that. It looks like each additional year at the ~age 40 retirement gives me about another $250 a month in income. That's why I took it out to age 42 with my calculations (which I should maybe revise but I don't know how yet) giving me 42K USD in 2014 dollars a year. But any more than that, I don't see what use I would have. Even now, at about 24K USD (post-tax), I'm not skimping on anything I want. I literally just have no use for any more money than that. Everything I want, 24K a year buys. The only worry is that when you don't have a job health insurance is a lot more expensive so in retirement I might need a few thousand a year more for that.

atush

KeithFlournoy wrote: »

Specifically I live in Wisconsin, kind of out of the way area. My $500 rent is a pretty nice place. A decent 2 bedroom 2 bath room condo costs about 200K USD, and I'd probably be able to rent out the other bedroom for $400-$450 or something. The only thing I'm worried about is that I don't want to buy a place and then decide a year later that I'm moving, because then I'll have just lost a bunch of money on the house.

Before buying check on rents in your area/type of property. If it covers your costs, you are safer than if it doesn't. Condos can be easier to rent in some areas (young professionals/students) and in others families (3 bed single family etc). Realor should be able to give you the skinny.

200K for a 2 bed condo means you are in an OK area, as you can get a 3 bed pool home in sw florida for that.

atush

To be honest, I thought 85 was reaching. I tried a few of those life expectancy calculators. I got a variety of answers, but most of them were late 60s/early 70s. I thought that sounded too young but I pretty doubtful I'm going to be 90-something. I didn't find any numbers for living to 95, but it looks like only 1 in 6000 lives to be 100. I'm probably not going to be that one.

you are probably looking at whole life expectancies at birth. You need to look at Cohort LE for males of your age.

More males die in birth/babyhood than females, add in high risk behavior/sport etc in the teens and you have male LE looking not too great then.

Once you pass 20-25-30 LE shoots up as you are less likely to roll your car on a sat nite, overdose etc.

Add in better medical science, and your socioeconomic class (ie are you eating and living better than your parents ie not smoking etc) and your LE shoots up again.

hugheskevi

To be honest, I thought 85 was reaching. I tried a few of those life expectancy calculators. I got a variety of answers, but most of them were late 60s/early 70s. I thought that sounded too young but I pretty doubtful I'm going to be 90-something. I didn't find any numbers for living to 95, but it looks like only 1 in 6000 lives to be 100. I'm probably not going to be that one.

Firstly, understand the difference between cohort life expectancy and period life expectancy.

Then ensure you consider life expectancy at a decent age, eg, 65, rather than at birth.

Then remember that in the data are lots of sick, overweight, unhealthy folk. Such factors tend to be correlated with lower income so use assumptions consistent with the mortality experience of better-off folk.

Take account of all of these, and you'll find life expectancy somewhere in the early to mid 90s (based on knowledge of some actuarial assumptions in pension scheme valuations).

Though as for what I want out of life, it literally is to sit around and do nothing. Eat, drink, and smoke, and sit around is about all I do in my free time. I'm not big on travel or any sort of "interesting" activities or anything. Yes, I am a very boring person.

Ah, scratch those age 90s estimates then Still, this is good on several counts - low income requirements combined with alcohol consumption and smoking should ensure you don't spend very much for not very long

Although personally I very much like sitting around not doing much myself I have to say. Once after travelling continuously for 14 months I got the opportunity to do whatever I wanted for as long as I wanted (staying with parents, on unpaid leave from work), and for about 2-3 months it was heavenly. Then it got utterly dull. One of the big perils of early retirement is knowing what to do with all the free time that materialises - whilst I can't speak from experience, many older posters on here have very useful insight about how to make early retirement work well, and you might want to develop and test out plans before committing as I've not come across many who truly don't do anything and really enjoy early retirement. Those who plan partial retirement, have very active hobbies, interests and plans and such like tend to do well from early retirement.

suki1964

You are 23 and your only ambition in life is to sit and eat, drink and smoke? :eek:

smellymel222

Check out the blog mr money mustache (type it in google and it will come up). He is a guy who retired in his early thirties and his blog has some great reading and advice.

KeithFlournoy

All of the calculators asked how old I actually was, so I think I got the right kind.

"Although personally I very much like sitting around not doing much myself I have to say. Once after travelling continuously for 14 months I got the opportunity to do whatever I wanted for as long as I wanted (staying with parents, on unpaid leave from work), and for about 2-3 months it was heavenly. Then it got utterly dull. One of the big perils of early retirement is knowing what to do with all the free time that materialises - whilst I can't speak from experience, many older posters on here have very useful insight about how to make early retirement work well, and you might want to develop and test out plans before committing as I've not come across many who truly don't do anything and really enjoy early retirement. Those who plan partial retirement, have very active hobbies, interests and plans and such like tend to do well from early retirement."

I haven't had months of downtime since I was 14 so I guess that could be an issue. As I remember it I just played video games all day, but I've gotten bored with them for the most part since. But I do know that I don't like working. I don't like traveling, or cooking, or making anything. Sometimes on weekends I play some games with friends, but that's about it. Other than that maybe some low stakes poker or something. But if I'm just bored with that then I'm bored with life, because I don't like doing other stuff. I'm just a boring dude.