Wednesday, March 4, 2009

Early Retirement Revisited

I haven't written about early retirement in awhile. So, let me first reiterate what I think are the three common rules among those who have retired early:
1) Living below your means (LBYM).
2) Maintaining a diversified investment portfolio on which to draw from.
3) Using a conservative 4% rule of thumb as a baseline for withdrawing from your retirement savings.

In my previous posts on PFStock, I have mentioned Billy and Akaisha Kaderli. This couple retired in their late 30s, and claim to live off of $24,000 per year. In my communications with the Kaderlis I have determined that they live in what is commonly known as a mobile home. When I asked my readers if they thought that they could live off of $24k a year, or retire to a mobile home, I did not get an overwhelming response. So, one could say that early retirees are often willing to do what most people are not.

I recently came across a blog that purports to be be about early retirement. But, the author is not actually retired, and the blog really focuses on an extreme version of what is known as "voluntary simplicity". Some suggestions mentioned in this blog are turn down the heat to 55F, stop drinking milk, and reuse gift wrap. This got me thinking that practically anyone could claim "retirement" by reducing their consumption to a very small fraction of their net worth. The real question then is "would you be willing to reduce your consumption to this level?"

Along these same lines is the book Your Money or your Life (YMOYL) written by Joe Dominguez and Vicki Robin. I read YMOYL a while back. While there certainly is a lot of good information in this book, some of the suggestions may be equally unappealing to many people.

The authors of YMOYL encourage the reader to thoroughly evaluate the value of each item they have, and track every last penny that comes into or out of your life. This is an activity that I personally frown upon, as I don't think that people should obsess about the minute details of every financial transactions.

YMOYL also advises investing virtually all of your money in US government bonds. I think that a more diversified investment portfolio of both stocks and bonds is a far more prudent choice. A portfolio made up of purely bonds violates rule #2, above. Also, as a historical note, Joe Dominguez died of cancer at age 58. And, this always left me with an uneasy feeling that the lifestyle he advocated in YMOYL may have contributed to his early demise.

In any case, I don't think that early retirement should be solely about depriving oneself to reach these goals. I will not tell you to give up eating meat, drinking milk, or buying your favorite latte drinks at Starbucks. Regardless, I think that everybody can make small steps that will bring an early retirement closer to reality.

Today, I will leave you with a quote from Robert Frost:

Never ask of money spent
Where the spender thinks it went.
Nobody was ever meant
To remember or invent
What he did with every cent.