Early retirement without a fortune

[Dazz]

Generally the people I find with a huge urge to retire early are those people who either A) Hate their job, B) Hate the company they work for or C) Hate the people they work with.

Yes, there is truth in that....but a myriad of underlying reasons I would contend.

• Boss is dictatorial. They aren't all cuddly and soft.
• You don't suffer fools easily.
• You wish to take control of your time. Submit a leave form for approval - never !!
• Don't play nicely with others.
• The company is massive (i.e. 100,000 employees +) and couldn't really give a stuff.
• You don't like the fillet of your day (7:30am to 6pm) being devoted to building wealth for someone else
• You can "see" opportunities others cannot

I left my chosen profession after 16 years thanks to the benefits of property investing. I was ready to go after 13, but was a bit of scaredy cat. When you work with elderly folks who have been working there longer than you've been alive and they are stuck grinding out the 8 to 5.....it gives you a boost to get your act together.

I reckon most folks set the retirement income level bar so high that they will invariably never reach it, and therefore they don't have to (a) put in the really hard yards to get there, and (b) face the daunting prospect of just leaving, and chopping off that golden salary chain tying you down.

 

[HotRod]

Yes, there is truth in that....but a myriad of underlying reasons I would contend.

• Boss is dictatorial. They aren't all cuddly and soft.
• You don't suffer fools easily.
• You wish to take control of your time. Submit a leave form for approval - never !!
• Don't play nicely with others.
• The company is massive (i.e. 100,000 employees +) and couldn't really give a stuff.
• You don't like the fillet of your day (7:30am to 6pm) being devoted to building wealth for someone else
• You can "see" opportunities others cannot

I left my chosen profession after 16 years thanks to the benefits of property investing. I was ready to go after 13, but was a bit of scaredy cat. When you work with elderly folks who have been working there longer than you've been alive and they are stuck grinding out the 8 to 5.....it gives you a boost to get your act together.

I reckon most folks set the retirement income level bar so high that they will invariably never reach it, and therefore they don't have to (a) put in the really hard yards to get there, and (b) face the daunting prospect of just leaving, and chopping off that golden salary chain tying you down.

Let me add some more:

• You want to spend more time with your family (kids are only young once)
• You want to do things with your partner (that's "with" not "to" )
• Sick of fixing other's problems at work
• You want to enjoy your health before you seize up (golf is a nice way to spend a day)
• You want to explore the world on your own time at your own pace with tyhe one you love
• Want to be more "plugged in" at home

Just barely having enough to just survive would not allow all these things to be done. I'd rather have the same income once I retire and luckily I will have.

 

[kathryn d]

Show on tv last night, wanting to entice people to move to their island.

It is Pitcairn Island, and where Fletcher Christians descendants live.

I'm sure you could live there pretty cheap.

 

[DEC]

I'm sure you could live there pretty cheap.

I'm sure you couldn't.
Everything has to get flown and freighted in for starters and think of the inbreeding.
It'd be worse than Tasmania

 

[Terry_w]

Hi Terry

I was just reading this and that's pretty much the goal here

Freedom 45: The math behind my retirement plan

Thanks Redwing,

That is another interesting example. There must be something similar of mr Money Moustach too.

I think many people aim too high and unnecessarily delay 'retirement'.

 

[Terry_w]

The pension currently is available for those over 65 and meet the income test and the assets test. The age at which it is available is slowly being extended and for some people they won't be eligible until 67.

Assuming someone will qualify, then, if they have paid off their home, they will end up with an income which is adequate for a modest lifestyle. This can be supplemented with part time work, business income, inheritances, etc. A person may even have some super by that stage too.

So an average person who owns their own home may only need to work out how much capital they would need to maintain themselves until 67.

Don't try this at home, but...

1st Step
The first step would be to work out what your living expenses are now and are likely to be in the future.

2nd Step
Multiply the annual income need by 25. This assumes you are earning 4% return, which you could probably get with some conservative investing.

3rd Step
Invest your money. Factor in inflation too. If you can increase your return to 7% pa you can allow for 3% inflation.

4th Step
Work out how long you need your nest egg to last. If you are 40 and plan to get the pension when 67 then that may be 27 years.


5th Step,
work out the size of the nest egg needed.
To work out how much you need, go to http://www.calculatorsoup.com/calculators/financial/present-value-annuity.php
Type in:
the rate of annual return in the top box, say 7% pa for shares
growth rate per period would be 0, (not sure what this is)
Annuity payment = $12,000 or whatever you need per year
Number of periods = 27 for 27 years until you can get the pension.

6th Step,
Invest like crazy until you get there.


eg. a 40 year old person, wanting $20,000 pa to live on would need approx $239,734 as a lump sum. They could then draw down $20k pa for 27 years and then rely on the pension if it is still there.


This is a very rough guide and doesn't take into account property, shares, tax or capital growth etc.

 

[china]

According to The 4 Hour Work Week by Timothy Ferris, one can start up an online business that pretty much runs itself once automated. I have been thinking, thinking but cant think of any ideas to provide such a service that hasn't already been done to death. Back when the gurus teaching this concept made their millions and retired young, they could sell diet pills, weight loss programs and fitness programs etc.

When I read this book, I thought the principles espoused were phenomenal and innovative. However, in practice, I just wonder how many people have managed to achieve the four hour work week by age 40 using the ideas in the book. Passive income streams exceeding active income streams are hard to establish. This is especially if your active income exceeds 100k per year.

 

[geoffw]

I partially read it. I found ideas like outsourcing jobs overseas very difficult to apply to a Subway.

There have been several authors espouse the idea of a passive income stream. Those authors have achieved this by writing books on how to achieve a passive income stream.

 

[Angel]

When I read this book, I thought the principles espoused were phenomenal and innovative. However, in practice, I just wonder how many people have managed to achieve the four hour work week by age 40 using the ideas in the book. Passive income streams exceeding active income streams are hard to establish. This is especially if your active income exceeds 100k per year.

But China, dear, the average person can achieve this. We earn a lot less than $100k in our day jobs.

The people I work with who are the same age as myself are perfectly satisfied with our lifestyles and we earn under $30K. I work five minute's drive from home with free parking. Get that in Sydney! It costs me less to travel to work in my car than it would on public transport.

I get 11 or 12 weeks a year paid leave (it just changed, I cant work out how many weeks leave we get any more). Not bad for turning up six hours a day for 40 weeks a year. We have an ADO system. The downside is that there are hardly any travel bargains to be had during school holiday times but we tend to avoid touristy places anyway.

I have mentioned previously that my Superannuation balance has doubled in the last five years. Actually I just checked, it has increased by one and a half times in five years.

I intend retiring on a higher income than I get now.

 

[lizzie]

So an average person who owns their own home may only need to work out how much capital they would need to maintain themselves until 67.

I cannot understand why someone who has the ability for more, would remotely aspire to be on the pension at any age ... only have to listen to the pensioners complaining about how hard it is to balance the budget, and look into their shopping baskets at the supermarket, it's all rather depressing.

 

[kathryn d]

I cannot understand why someone who has the ability for more, would remotely aspire to be on the pension at any age ... only have to listen to the pensioners complaining about how hard it is to balance the budget, and look into their shopping baskets at the supermarket, it's all rather depressing.

In Canada (which this link was referring to) once you start drawing OAS pension (Old Age Security) and CPP (Canada Pension Plan) they start clawing it back if you have other income.It makes self funded people very angry, because someone who did nothing, in many ways will have a similar income. They may do this in Australia...I don't know.

With RRSP (reigistered retirement saving plans) there is a formula once you reach a certain age (currently 71, I think) where you must withdraw funds until it is depleted (by age 90, I believe). After the age of 71, you can no longer contribute to your RRSP.

The author was suggesting, I believe, in order to retire early, the average person doesn't need as much money as they think. They only need to provide until their OAS, RRSP kicks in.

We are also permitted to contibute to a TFSA (tax free savings account). Currently is $5k per peron, per year.This is after tax money, and the current 1-2% isn't going to make much difference.


I used to think a person can save their way to wealth, when I was gung-ho on RRSPs. Until I starting property investing, we always made our maximum contribution (18% of the gross previous years income) or $13K (changes with inflation)
Now we are just building up our contribution room, so when we actually start to pay taxes, we can offset it with a tax deferrment.

I'm not sure of the profession of this author, but I assume it is teacher?
When teachers retire, their pensions are very very generous. Nothing like the average population, work pension here. (if your employer even offers one)

 

[Terry_w]

I cannot understand why someone who has the ability for more, would remotely aspire to be on the pension at any age ... only have to listen to the pensioners complaining about how hard it is to balance the budget, and look into their shopping baskets at the supermarket, it's all rather depressing.

For the sole reason of retiring asap.

I know an Aussie guy who retired at 34 or so. He is retired 3 years now and living on a beach in Thailand. He never intends to 'work' again. If he waited until he had $x saved up/invested he would probably have never got there.

He is now living on about 40% of the pension amount.

I also know of people retired in Australia and living on nothing but the pension - still plenty of money for them and some even still have loans on their houses.

The pension for a single person is about $19,000 pa and for a couple it is about $29,000 pa. That is more than enough to live on.

 

[HotRod]

For the sole reason of retiring asap.

I know an Aussie guy who retired at 34 or so. He is retired 3 years now and living on a beach in Thailand. He never intends to 'work' again. If he waited until he had $x saved up/invested he would probably have never got there.

He is now living on about 40% of the pension amount.

I also know of people retired in Australia and living on nothing but the pension - still plenty of money for them and some even still have loans on their houses.

The pension for a single person is about $19,000 pa and for a couple it is about $29,000 pa. That is more than enough to live on.

And that $19K or $29K would effectively be tax free with all the rebates and new tax free threshold.

Still, I would not aspire to it. Living in Thailand might be fine, but you do give up some things to live there, health system/stable governance. Also, do you still get paid the pension if you reside OS?????

 

[greedy2000]

If I was under 55, I wouldn't be basing my retirement plans on the current structure of the aged pension. I would be solely focused on generating enough capital to fully support myself in retirement.

Currently the aged pension arrangements as they stand are very generous.

We have an aging population, with a huge chunk of our demographics retiring soon (Baby boomers), who not only will retire soon, but will live longer than any other generation before them. How long can we as a tax base afford to pay out $29,000 pa per couple + Medical expenses for people that will be living 20 - 25 years past retirement.

My predictions would be aged pension retirement age moved from 67 to 72.
Income and asset tests re-jigged to be less generous.

$29,000 pa is enough to pay the bills, but not much else. forget travelling, renovating, upgrading the car, beers at the pub or anything else.

(On another note I heard from a speaker recently that if the US rose their retirement age to 65, all their problems would be solved...)

 

[Terry_w]

And that $19K or $29K would effectively be tax free with all the rebates and new tax free threshold.

Still, I would not aspire to it. Living in Thailand might be fine, but you do give up some things to live there, health system/stable governance. Also, do you still get paid the pension if you reside OS?????

Yes, the new tax free threshold works out to be about $20,400 now. There is also an 'old person rebate' so someone that qualifies could earn about $30k pa tax free.

If you are living overseas then there is a chance you may lose your tax resident status though.

Health system in Thailand is superior to that in Australia in many aspects too. Many of the doctors are also foreigners (such as Australians) or Thais trained overseas. Great facilities too. You would need to get medical insurance though.

The pension is available to Aussies living overseas. The rate may change if a persons AWLR (Australian Working Live Residence) is less than 25 years. I don't know the definition of this - could be in you work less than 25 years you may not qualify.

 

[austini]

I'm not sure if has been mentioned so far but having TPD & Trauma insurance is very important especially in retirement. Having to deal with a very serious illness and/or an ongoing costly disability can deplete retirement savings very quickly. Even with private health cover one can still be out of pocket by ten of thousands of dollars or more from a single serious illness.

The statistics can be quite scary in regard to major illnesses. We all like to think it can't happen to us but I've personally seen it happen more frequently than I would ever have thought even with friends and aquaintances who have lived a very healthy lifestyle.

Not happy things to think about when one is considering the joys of a rosy early retirement but I feel such things are important to consider.

 

[Sheryn]

I cannot understand why someone who has the ability for more, would remotely aspire to be on the pension at any age ... only have to listen to the pensioners complaining about how hard it is to balance the budget, and look into their shopping baskets at the supermarket, it's all rather depressing.

Lizzie


Someone who has the ability for more, would not aspire to live on the pension.

We have come across across a lot of people in our travels who earn't and spent a good amount of money in their life times but never thought about putting that money to work first an now they are making do and waiting until they can get the pension.

Too busy having a good time in their younger days...to think about the future and then at approximately 55 years old and lose their job for various reasons.


Regards
Sheryn

 

[redwing]

Reading Mr MoneyMustache it's an active retirement also, as he closed his old company and started a 2 person company with his wife where he does custom renovations as well as real estate sales in partnership with his wife

How I retired at age 30

I define us as retired, because that is a novel word to throw around for those under 50 that sounds much more interesting than "financially independent." Also, the cash flow from investments is much higher than our spending, so work is only done for fun and on our own terms. For example, this year I stopped taking on carpentry work altogether and just started typing my blog and doing other unpaid work like school volunteering. Other years, I may accidentally earn hundreds of thousands of additional dollars by starting another company. Who knows!? Even then, Mr. Money Mustache will still be retired, so there.

Saving their

Year 10 'stash: 800k or so.

was a great achievement

 

[BayView]

(On another note I heard from a speaker recently that if the US rose their retirement age to 65, all their problems would be solved...)

There are plenty, and I mean plenty, of folk over the age of 65 still working in the US, and will have to until they drop.

Health insurance premiums, access to affordable and adequate health care (or should I say; lack of it) are two of - if not the biggest - reasons why people need to keep on working forever in the US.

You simply cannot afford to get sick over there.

Their health care system is a total joke.

 

[lizzie]

I still can't get my head around people spending only $50/wk on food for two.

We are only three - and I've already spent around $300 this week at the supermarket. Granted, there was some on special Olay face moisturiser (a girls' gotta keep her looks), dog food and laundry products in this - but they do need to be bought regardless.

It's not like I'm extravagent - I buy veges/fruit in season, meat on special, use a lot of better quality mince and generic chicken, homebrand whenever the product is of similar quality (sugar, cling wrap, flour, milk etc) and we waste very very little.

I do splurge a little like bought Magnum's today as treats - but they were 50% off.