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Old 2nd August 2018, 10:48   #1
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Default The Early Retirement Thread

I was surprised I couldn't find a thread for this. This is a hot topic among many IT and other professionals from early 2000s as well as mid-life professionals around the world.

This is the age of the Internet, which means more exposure than ever before, for everyone, to lifestyle choices available. Hobbies, sports, passion for business, passion for helping others and other interests have become important to people now, thanks to the Internet I think, than to our forefathers who had to struggle a lot to make their ends meet.

A facet of this change is the fairly new idea of retiring early - very early. Some in their 40s, some at 40, some in even early 30s.

The high level idea is - accumulate a certain corpus, invest it in places that give returns that beat inflation in the long run, and the difference between this return rate and inflation is for consumption. Identify how much you need today for basic needs, add some buffer and a lumpsum for one-time life events, then work backwards by figuring out how big a corpus minus those buffers would yield a return that , minus inflation, would equal this annual need.

All the data is there. Historical growth rates, historical inflation, current lifestyle needs, tax rates, everything is available knowledge online, making it easy for anyone to plan their numbers.

Per my calculation, a 5 crore corpus + a house to stay in (in 2018 values) gives a fairly decent middle-class lifestyle. Not upper-middle-class, but strictly middle-class.

You may ask - Why would someone aim for this? Being middle-class out of no choice is different, but aiming for middle-class is mediocrity, isn't it?

A valid question, but the truth is the aspiration doesn't stem from mediocrity, it stems from a desire to focus on non-financial aspects of life.

This life, this existence, is a mystery. No one knows what's the nature of consciousness, or the mysterious reasons behind this life-and-death cycle we find ourselves in. As curious beings, we have this instinct to explore and experience as much of it as we can, and in the process if we can, improve a thing or two along the way. That, is our natural urge in life, as has been all our animal ancestors' that have evolved into us. In the midst of this quest, this need for money is a hindrance. It is needed to survive, and we find ourselves caught in this helpless pursuit for money very young. So over generations, out of necessity, most of our species has forgotten this desire to explore and experience, and instead has been taken over this quest to make money. This, I believe, is cause for a lot of human unhappiness on this planet.

We find this dearth of money, this curse, everywhere. Around us, our families, with people we know, people we care about. Everyone is caught in it. We start our lives free, then the moment we start LKG it is all a chase. A continuous chase to keep up, the pressure of exams, a pressure to prove ourselves and self-validate, all the way until we exit school and college with some kind of certificate to show for it. Whew. Then when we thought it is over, we realize it has just began. The rat race. Morning after morning, night after night, week after week, team after team, the same tiring, challenging, life-sucking life that has taken our lives. For decade after decade until 60 or 65, when we just decide to be done with that and our health issues begin to worry us.

So really, we live worry-free only for the first three years of our lives, most of us.

The idea of Financial Independence to Retire Early (FIRE as it is known on the Internets) is a thought behind breaking out of this. To get freedom, to get time back in our lives. Time that should have been ours in the first place. To live worry-free and make the world our canvas.

So as you can see, it is not mediocrity. To the contrary, it is an extreme ideal and an extreme desire. It comes from the stance that "free" time is so valuable, it is worth giving up a lot of potential money for, once the bare minimum needed is reached. Even if that "free" time is wasted away in so-called unproductive means, it is still a better quality of life than time spent employed at an uninteresting workplace. And time spent helping others beats both, it is the best quality in life. This is the idea behind the extremely early retirement passion, not "settling" for a middle class life.

The steps are broadly
- Calculate how much you need and set goals with timeframe with a feasible plan
- Follow the plan and achieve the goal amount
- Find your passion and spend your time there

Now the last part is the tough part, finding your passion. Now that early retirement is achieved, what next?

- If you don't go to work, who is the peer-group now? Without a peer-group, whom do you relate to? Whom do you spend time with, learn from, have fun with, share banter with, spend challenging as well as fun times with?

- What would you do with your time?

- What really IS your passion? Music? Photography? Writing apps? Running a restaurant? I can think of just way too many ways to spend my time, that don't involve being in a multi-storied glass building listening to corporate-speak.
(but I will admit though, I do enjoy my job - just not the corporate-speak part of it - so I may still continue to work)

Thoughts welcome! If anyone has gone through this, or is thinking about this, curious about your thoughts and experiences.

Last edited by SDP : 17th August 2018 at 18:33. Reason: Typos
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Old 2nd August 2018, 11:12   #2
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Originally Posted by rajushank84 View Post
A facet of this change is the fairly new idea of retiring early - very early. Some in their 40s, some at 40, some in even early 30s.
On the other side of the spectrum, a question is emerging, equally rapidly - 'Whether our ilk, would at all be able to retire (not necessarily from just a job or career, but from the need to continue earning)'

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Originally Posted by rajushank84 View Post
The high level idea is - accumulate a certain corpus, invest it in places that give returns that beat inflation in the long run, and the difference between this return rate and inflation is for consumption
Volatility and risk exposure are increasing, particularly the latter. Corporates cannot be trusted with your money, Banks neither (I work for one), neither the government, neither physical assets - so where do you go? There is no investment that you can absolutely trust.
The only realistic option is to continue working (in some capacity) and continue earning (at some level), and not just depend on past accomplishments and savings.

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Originally Posted by rajushank84 View Post
This life, this existence, is a mystery. No one knows what the nature of consciousness, or the mysterious reasons behind this life-and-death cycle we find ourselves in. As curious beings, we have this instinct to explore and experience as much of it as we can, and in the process if we can, improve a thing or two along the way. That, is our natural urge in life, as has been all our animal ancestors' that have evolved into us. In the midst of this quest, this need for money is a hindrance. It is needed to survive, and we find ourselves caught in this helpless pursuit for money very young. So over generations, out of necessity, most of our species has forgotten this desire to explore and experience, and instead has been taken over this quest to make money. This, I believe, is cause for a lot of human unhappiness on this planet.

We find this dearth of money, this curse, everywhere. Around us, our families, with people we know, people we care about. Everyone is caught in it. We start our lives free, then the moment we start LKG it is all a chase. A continuous chase to keep up, the pressure of exams, a pressure to prove ourselves and self-validate, all the way until we exit school and college with some kind of certificate to show for it. Whew. Then when we thought it is over, we realize it just began. The rat race. Morning after morning, night after night, week after week, team after team, the same tiring, challenging, life-sucking life that has taken our our lives. For decade after decade until 60 or 65, when we just decide to be done with that and our health issues begin to worry us.

So really, we live worry-free only for the first three years of us, most of us.
I agree with this philosophy, but don't yet see a way out of this trap!

Last edited by roy_libran : 2nd August 2018 at 11:15.
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Old 2nd August 2018, 11:35   #3
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Per my calculation, a 5 crore corpus + a house to stay in (in 2018 values) gives a fairly decent middle-class lifestyle. Not upper-middle-class, but strictly middle-class.
- Retirement fund should be equal to approximately 25x to 30x your average annual expenses
- Put 50% in equity mutual funds, 50% in debt mutual funds. For regular monthly expenses, pull out money from the asset class that is above 50% (value of equity MF portfolio goes up and down all the time)
- Own house
- No loans or EMI of any kind
- Make sure you buy adequate health insurance for entire family

It helps if you have a working spouse.

After you retire, do NOT pursue interests that require huge investments (like opening a restaurant or mini-resort). Because that can clean out your retirement fund.

Instead, pursue interests that need little or no capital. But such interests need to have an income generating potential a few years down the line.

Last edited by smartcat : 2nd August 2018 at 12:02.
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Old 2nd August 2018, 11:38   #4
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Default re: The Early Retirement Thread

Thoughts on this article ?
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Old 2nd August 2018, 11:52   #5
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Originally Posted by Eddy View Post
Thoughts on this article ?
Makes sense, although he is talking about how to achieve comfortable (financial POV) retirement life after 60 - when you don't have spend on kids. Early retirement is a bit different.

Deepak Shenoy of Capitalmind.in is somebody I respect immensely. He has a brilliant analytical mind when it comes to financial matters.
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Old 2nd August 2018, 13:26   #6
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Default re: The Early Retirement Thread

Great topic.

Lot of people in the IT industry say “what will I do, after I quit?”. Some people not in the IT industry say "are you mad? why would you want to give-up a great job"?

I was almost there, had resigned few months back and was asked to withdraw my resignation (on the last working day) as I did not have a job at hand. Nobody believed when I said I am quitting without an offer at hand. Only on my last day at work did it sink-in to my friends that I am moving-out for good. My colleagues were stunned when I said “ I am done with IT industry”. I was told that I am crazy to have taken this step. Of course now that I am still working, I have to re-plan my retirement.

Other than the financial aspect (which is the most important), what else should we look at?

Pondered quite a bit before I resigned. Had planned how to spend my time, at the least for first 4 months, based on the outcome wanted to update\fine-tune my plan.

Yes, the biggest advantage is that, one would get a lot of time to spend with friends, family, healthy eating-sleeping habits, meet relatives more often, be a part of all the family functions\parties, travel (everyone says they want to travel), go for unplanned vacation, etc.

How would the society\larger family look at it? I think it is difficult for a person to say “I don’t care what the society thinks of me”. Agreed each-to-his-own, but somewhere there is a social stigma and I think we do take into account what the society\larger family talks about us.

Family obligations would increase, I have heard my colleagues speak of others - “he is unemployed, he can tag along, what other work does he have, etc”.

I am unsure if people would stop respecting “one’s time\availability” and simply take a person for granted.

Our family loves us and respect whatever decision we take, but then, in the recent years, even school kids want their “space” and their “my time”, would it become difficult for people at home to handle us 24/7? Considering that all these years most of us would leave home in the morning and get back only by nightfall, except for weekends\holidays?

Yes, we can pursue our interests, but for how long?

This is a great thread, maybe some of our fellow BHPians may think what are these guys ranting about .
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Old 2nd August 2018, 16:43   #7
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Default re: The Early Retirement Thread

Am in the IT industry and in my mid forties. I feel like a spent horse and has lost all interest to work. I spend most of my time reading stuff not related to my work.

I had been contemplating early retirement (@40) quite a long time ago, but did not really plan towards it. Still I have accumulated a couple of crores in assets plus more via inheritance.

A back of the envelope calculation says that I can retire now but lead a modest life, which am okay with. I also need to catch up with my health which is waning.

Still am scared to make the move. The monthly paycheck, the family health insurance and the 50L life insurance the company provides are holding me back.

I suspect it will never happen.
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Old 2nd August 2018, 16:52   #8
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I had been contemplating early retirement (@40) quite a long time ago, but did not really plan towards it.
I suspect it will never happen.
My dad used to say this often: "Change of work is rest".

I was in the same boat as you are; though it seems that we look forward to retirement, we are actually looking forward to "change in work". Something close to our passion.

I quit IT and now am full time in to investing, with the plan to start investment advisory in the future.

My advice: try to find "new" work
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Old 2nd August 2018, 21:02   #9
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Still am scared to make the move. The monthly paycheck, the family health insurance and the 50L life insurance the company provides are holding me back.
1) You don't need that 50L life insurance because sum assured is a small percentage of your networth. That is, your networth will take care of your dependents and that extra 50L is not THAT meaningful an amount.

2) You can buy family health insurance, of course

3) The monthly paycheck? Well, all you need to do is figure out a way to generate regular cash flow from your assets. Eg: keep minimum real estate (one apartment or house for staying) and convert the rest to financial assets (so that you get interest income, capital appreciation, dividend income etc).

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Old 2nd August 2018, 21:47   #10
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Default re: The Early Retirement Thread

There are definitely interesting options.

- If your corpus generously exceeds what you need, the excess can be invested towards real estate developments.
- Restoring and flipping classic cars.
- eBay / Amazon distributorship for mainstream goods (apparently it boils downs to SEO skills and specific learnable techniques)
- Run a restaurant (this is not low-work or low-stress at all though; probably higher stress than IT jobs)

Personally, I am nowhere near being able to make this move, but if /when I do, I want to be in the right mindset and prepared to do or not do it.

I think it is not about what friends/family think, it is more about how I appear to myself. If I am not using my time to improve my family's wellbeing, I better be using it to help someone else out (contributing to rural education is a low-hanging, high-impact fruit, just start with free English and Math tuition for kids who need it but can't afford it). If you are brave, even dive into politics with the right motives and without corruption! Or a startup - build something you are passionate about, while creating a few jobs and helping the economy along.

I don't think I can be happy just chillin. I wonder if this is a distortion of natural human self-image, accumulated over generations of working like machines, or on the flip side - I wonder if this is what makes us great, this desire to constantly strive to improve things for someone - whether that someone is ourselves, our families or our country.

Last edited by rajushank84 : 2nd August 2018 at 21:51.
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Old 2nd August 2018, 23:53   #11
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Am in the IT industry and in my mid forties. I feel like a spent horse and has lost all interest to work.
A back of the envelope calculation says that I can retire now but lead a modest life, which am okay with.
The income is important at this stage when probably you still need to provide for children to adulthood. But you are far luckier than most with a reasonable tranche of savings. As smartcat says keep one house which to live in and liquidate the rest of your real estate and invest it into income generating mutual funds. I sold off my business at 58 at my peak of status and moved out to a second career completely which is some fun, much lighter, fulfilling in a different way but with no position or power. Think deeply and follow your heart.
Quote:
I also need to catch up with my health which is waning.
This is the most important point in your post. Assume you have another 30 to 40 years to go, assume you will eventually do things or a second career that your heart is in - then good health or at least reasonable health is sine qua non. Some of the health matter could be related to your despair over your job. Trust your body to be able to repair itself when given a chance.
Quote:
I suspect it will never happen.
never say never. You don't know what goodness is cooking in your favour in the womb of time. Best of luck. Don't beat yourself over despair and despondency - we all experience it - some hide it better. You have shown the courage to look your situation and feelings in the eye and the honesty to express them openly. Not many men have the courage to do that.
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Old 3rd August 2018, 10:24   #12
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Originally Posted by rajushank84 View Post
Per my calculation, a 5 crore corpus + a house to stay in (in 2018 values) gives a fairly decent middle-class lifestyle. Not upper-middle-class, but strictly middle-class.

Thoughts welcome! If anyone has gone through this, or is thinking about this, curious about your thoughts and experiences.
I think the number which you have is good enough! If I own the house and have no mortgages, I would probably put the entire 5cr money in a fixed deposit. Assuming a 7% interest rate which after tax will amount to 4.9%, this FD alone will give me 24.5 lakh annually i.e. an amount of 2 lakh per month. I think this is definitely upper middle class kind of income.

I just need to calculate how many years I will take to accumulate 5cr!
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Old 3rd August 2018, 10:35   #13
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I think the number which you have is good enough! If I own the house and have no mortgages, I would probably put the entire 5cr money in a fixed deposit. Assuming a 7% interest rate which after tax will amount to 4.9%, this FD alone will give me 24.5 lakh annually i.e. an amount of 2 lakh per month. I think this is definitely upper middle class kind of income.

I just need to calculate how many years I will take to accumulate 5cr!
I need to point out a simple flaw in your plan which would destroy your wealth quickly!
- Don't put it in FD. If you put it in FD, your returns just match inflation levels. So in other words, your 5 crore would stay at 5 crores' equivalent value in future only if none of it is used.
- Which in turn means, every rupee you take out diminishes it.
- If you take out all the returns and keep the principal amount in the FD, it will diminish to half its value in exactly ten years.
- On top of that, you are keeping the monthly withdrawal static, without adjusting for inflation. Pretty soon (10 years ish), it won't be enough to live.
- On the other hand if you do adjust your withdrawal for inflation, your corpus would diminish even further (to zero in exactly 14 years).


Instead, why not one of these options:
  • Mutual funds, be in it for the long run, considering ups and downs over 10 years it is quite possible to hit an average 10% returns. So you earn 10% returns, leave 7% in it for inflation and withdraw 3% every year. So 3% of 4 crore, after 10% long term capital gains, is Rs.90K per month. So redeem this 90K per month worth of units as needed. Note that there is NO additional tax with this approach. OR
  • Invest it in real estate. Buy as many houses as possible and rent them all out. Increase rent as inflation goes up. House values automatically keep up too. Out of rent, set aside a percentage for property taxes, maintenance and income tax. Use the rest for monthly expenses. Let's do the math for this option:
    4 crore = lets say 5 flats in Chennai
    Each flat fetches lets say Rs.18K pm. = Rs.90K per month. Out of this set aside 20K for (prop taxe + income tax + maintenance)
    Yes, this is lower than the mutual funds approach, and possibly more work (maintenance, finding tenants etc) but real estate arguably can give the best results in the long run, so that offsets it somewhat.
Maybe a mix of both approaches - half in real estate and half in equity mutual funds. A fairly diversified mix of high-return areas.
(In both the approaches I am basing the calculation of 4 crore. Because I suggest leaving aside 20% for big-one-time expenses like wedding of children, education, etc or unforeseen expenses, like a some financially disastrous health condition.)

I would do something like this instead of FD. You always want to stay ahead of inflation and use up only the difference between your return and inflation.

Last edited by rajushank84 : 3rd August 2018 at 10:55.
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Old 3rd August 2018, 11:00   #14
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I need to point out a simple flaw in your plan which would destroy your wealth quickly!
Got it - I completely ignored inflation! Can you help me with one calculation. I am 30 years old now. Let us say my aim is to have 1cr in my bank account by the time I am 40 years old i.e. in 10 years. How much should I save monthly in order to reach my target i.e. 1cr in bank account in 10 years. My salary is the only source of income and it will grow at 5% per annum.
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Old 3rd August 2018, 11:21   #15
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Got it - I completely ignored inflation!
My calculations are based on zero inflation. Eg if I have 1 cr in the bank today and my monthly expenses are 80k , ie annually about 10 lacs , then I can survive for 10 years.

My assumptions are that inflation and wealth grow roughly at the same rate , especially so over a long period of time , and the growth of wealth is the same whichever investment class you put it in - such as FDs , equities , property , gold etc . They're all going to average out in the end with their upturns and downturns. It does make the calculations a lot simpler for me.
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