Retire Young!               You CAN Retire Young: How to Retire in Your 40s or 50s Without Being Rich

BOOK SUMMARY

Chapter  1 – Do What You Want, When You Want

My goal in writing this book is to change your life. If you are in your 20s or 30s, it will provide the guidance you need to retire in your 40s or 50s. If you are already in your 40s or 50s, perhaps you are closer than you think but you haven't yet realized the reality of retiring so early in your life. If you don't earn enough to retire in your 40s or 50s, you still want to be able to retire as early as possible with sufficient money to enjoy what should be your best years. In that case, this book also provides the strategies you need to meet your retirement goal. 

The focus of chapter 1 is on helping you determine if you are a good candidate for early retirement, and then what you might do as a young retiree. Actually, the list is endless. It will vary with each individual and depend on net worth and personal interest, but a wide variety of activities is listed as a starting point. Lifestyle preferences are especially important for early retirees.  

Chapter  2 – The 2-Minute Survey on Work

Why do you work? Think about it for a minute. What is your real motivation for getting up and going to your job each day? Do you enjoy it so much that you can hardly wait to get there, or would you rather be doing something else? Would you work if you didn't have to—if you could afford not to?

I developed a survey for the book to find out how people feel about work and retirement. The survey is reprinted so you can fill it out before reading the chapter. The survey responses are then discussed question by question so you can compare your responses to that of the survey group. Some of the answers seemed predictable; a couple were somewhat surprising. You should find this chapter interesting and hopefully enlightening. One finding of particular interest: 76 percent of the survey respondents would like to retire at 55 or younger. Whether or not they actually will, may depend on how well they follow the strategies delineated throughout the book.  

Chapter  3 – What About the “Work Ethic”?

One of the most difficult aspects of retiring in your 40s or 50s may be overcoming the "work ethic." Shouldn't you be expected to work while you are young and healthy? Don't most people grind away until they're 65 (maybe 62) and then retire on Social Security? If you have a strong work ethic but would also like to retire young, you may perceive a conflict; we certainly did. But we figured out how to deal with it and this chapter explains how you can, too. 

Another issue we questioned before hanging up our work clothes was how our friends and relatives might react to us retiring in our early 40s. Would they be supportive or not? We already know that three-fourths of working people want to retire by 55; if they could afford it, that's what they would do. And that's what we did. Chapter 3 discusses the work ethic, how early retirees may feel guilty at first, how to overcome both of those, and some of the reactions we have seen in other people to our being retired at such a young age.   

Chapter  4 – The 3 Keys To Retiring Young

We set a goal early in our lives to retire rich when I turned 50 (we defined rich as having at least a million dollars). That goal was precipitated by the death of my dad at age 52. Our quest to retire rich by age 50 resulted in exceptionally long workweeks. In fact, it finally dawned on us that we would probably be dead long before we were rich. But we discovered something else along the way: you don't have to be rich to retire young. So we retired in our early 40s without being rich and that was eleven years ago.

In order to retire young we needed to figure out how to grow net worth such that we would no longer have to work. We decided there were three keys which would allow us to save and invest in a manner that would accelerate our net worth and allow us to retire early. All "3 Keys" are discussed in this chapter, though two of them (financial self-discipline and wise investing) also have their own chapters.

Chapter  5 – Today Or Tomorrow?

Living for today refers to wanting things now—without giving much thought to the future. In the context of this book, living for today means not worrying about retirement tomorrow and hoping that Social Security is still around so there is some meager income when you turn 62 or older. In contrast, living for tomorrow means working hard today and giving up some of life's immediate pleasures to save more for the future. Done correctly, that can mean having the option while you are young to choose whether you want to continue working or retire early and spend the rest of your life doing whatever you choose.

Chapter 5 discusses the ramifications of each of those choices and presents the solution: a compromise between living for today and living for tomorrow. This chapter also presents one of the most important steps you can take toward living for tomorrow and achieving the goal of retiring young.

Chapter  6 – How Much Is Enough?

How much is enough to retire young? That is going to depend on what you want to do in your retirement. If you want to ski the Alps several times a year or live in Beverly Hills and fly a Lear jet for your hobby, it's going to take a lot more money than if you're content to live next to the city dump and forage through the pickings for your favorite leisure activity. Chapter 6 presents two theoretical retirement expense budgets to illustrate how to go about figuring how much is enough for you. It then discusses how much other early retirees believe is necessary. Generally, the less you can live on the sooner you can retire (assuming a given amount of retirement income). Having less-expensive hobbies and interests can go a long way when it comes to retiring early with less net worth. But then you have to be happy with those hobbies and interests too. 

Chapter  7 – Financial Self-Discipline

Think of financial self-discipline as spending your money in a prudent manner and saving/investing as much as possible to reach your goal of retiring young. Spend and save judiciously and you will come out well ahead of most people. This chapter reinforces the need to apply financial discipline in order to save as much money as you can, as fast as you can, so your investments start growing quickly on a tax-deferred basis. Numerous financial self-discipline strategies are presented and discussed so that you can apply them to your life.

How did Kris and I accumulate enough money in 18 years to retire in our early 40s (on a combined after-tax income averaging $47,300 per year, including interest, dividends and capital gains)? It wasn't because we started out rich or inherited a million dollars. This chapter reveals how we started our married life in debt, never inherited a penny, never won the lottery or got any other windfall, have no employer-funded pensions now or in the future, and didn't make a big bundle from our businesses when we retired because we locked the doors and walked away rather than selling them. If you can relate to that, then you will appreciate this chapter. It wasn't all uphill; in fact, there were times when we took one step forward and two steps back. You will see that, if we could do it given our circumstances, so can you.

Chapter  8 – Tracking Income and Expenses

In order to embrace financial self-discipline and retire young, you need to know how and where you are spending your money. Armed with that information, you will be able to make intelligent decisions as to where you can cut expenses in order to derive more savings. Getting control of your spending so that you can increase your savings and investing is essential to reaching your goal of retiring as young as possible. You must eliminate debt and start saving aggressively; tracking expenses will be a necessary and beneficial first step in accomplishing the latter. Chapter 8 focuses on setting up an expense tracking form so you can figure out where your money is being spent and also discusses the issue of debt.  

Chapter  9 – Take Control of Your Spending

Many people cringe when they hear the word budget. But that need not be the case. It's all in how you look at it and how you see a budget as working for you to achieve a goal that can impact the rest of your life—early retirement. Given the desire and motivation to attain a spending/savings goal, a budget provides guidelines and focus. Tracking your expenses tells you where your money has been going while your budget establishes where your money will be going. The difference between those two can be your newfound savings. By developing a spending plan that is realistic for you, making a commitment to follow it, and applying financial self-discipline, it will be a useful tool for building net worth and retiring young. 

What makes this chapter unique compared to other early retirement books is that I present our actual budgets for 1994 and 2002. Each category in those budgets is discussed so that you can determine how appropriate it is for your budget and you can see the impact of inflation on our budgets over those years. Some will undoubtedly look at our various expense categories and wonder how we can live on that. Actually, it's been fairly easy. We have been living within our budgets for nine (going on ten) years—they are realistic and feasible. What is special about this chapter is that other budding early retirees can see a functional budget that has been successfully employed for nine years. It works for us and it can work for others; but it's not going to be appropriate for everyone. 

Chapter 10 – Investments for the Long Run

This chapter doesn't tell you specifically where to invest your money; that is a decision you must make yourself based on individual circumstances. Rather, it provides a general introduction to investments for the long run that can help you increase your net worth to a level sufficient for retiring young. My goal was to keep it simple; other resources are suggested for more in-depth information on investing. Historical figures presented for investing in cash, bonds, and stocks are compelling. Discussed in this chapter are individual stocks versus mutual funds, and within mutual funds, index funds versus actively-managed funds. Hiring a financial advisor is covered, as are several things to consider when choosing your investments. I also discuss several poor investments we made along the way so that you don't have to make those same mistakes. 

Chapter 11 – Growing Your Net Worth

Investment alternatives range from relatively simple and low-risk, to complex and high-risk. From the perspective of retiring young, there is little reason to risk your money more than is absolutely necessary to achieve net worth growth. From an historical perspective, one need look no further than a combination of stocks, bonds, cash, and perhaps real estate to achieve the desired results. Asset allocation, dollar-cost averaging, and managing risk are important concepts discussed. This chapter also includes three investment moves I believe are critical in growing net worth to achieve an early retirement goal.  

Chapter 12 – The Social Security Pension Myths

One question you may be wondering is: How will retiring young affect my Social Security pension? If that is your first question, then perhaps your second should be: Will I even get a Social Security pension? The younger you are upon reading this book, the more concerned you need to be. This chapter will tell you why and help you to understand the Social Security pension myths: Myth #1, it's in the Constitution; Myth #2, there's an account with your name on it accumulating real interest; Myth #3, the trust funds; and Myth #4, you can retire with full benefits at age 65. 

Chapter 13 – Retire Young and Still Get Paid!

Upon retiring young and knowing that a book was in the offing, I conducted a little research by submitting two "Personal Earnings and Estimated Benefits Statements" to the Social Security Administration (the form that advises how much you will receive in Social Security Benefits based on what you've paid in). One form stated that I would continue working another 20 years until retirement at 62 earning $30,000 per year. The second form stated that I was retiring at 42 and would have no earned income the rest of my life. The question for which I was seeking an answer was: How much more would the Social Security Administration pay me for working an additional 20 years—would it be significantly more than what I would pay in over those 20 years? Were there any benefits to continuing to work and pay Social Security taxes for another 20 years?

The results are presented in this chapter. What I was also interested in finding out was whether Social Security was a good deal relative to other retirement plans we could be investing in. The bottom line: the longer you pay into Social Security the less money you will get out of it relative to how you would do with a 401(k), 403(b), SEP, SIMPLE, or any other retirement plan. If you care about your hard earned money, this is a chapter you may find a little upsetting. 

Chapter 14 – Where To Live When You Retire

Where you choose to live when you retire will depend on your retirement income and personal preference. This chapter points out some of the factors to consider when making that decision. Some of the topics covered include: cost of living and how to research that in advance, retiring where the activities you want to do are available, buying versus renting, and whether you should take out a mortgage or pay cash if you decide to buy a house.

Chapter 15 – What’s Wrong With Part-Time Work?

What if you have the desire to retire early but you don't have an employer-funded pension and your net worth alone does not quite support quitting your full-time job? Do you strap on the ball and chain and keep plugging away at something you would rather not be doing? Absolutely not. You have options. And one option that might work for you is part-time employment. This chapter covers several reasons why part-time work can be a good thing: it can allow you to retire early when you can't otherwise afford it; the wages earned can allow you to buy or do things that wouldn't otherwise be feasible under your retirement budget; and it can fill the gap between the time you retire and the time you can start withdrawing from your retirement accounts penalty-free. Surveys reveal that most people want to work part-time after they retire. There are several compelling reasons why that can be a good thing for early retirees and this chapter covers them.

Chapter 16 – Those First Few Weeks (and Months)

After being used to 40, 50, or even 60-plus hour workweeks, you may find the first few weeks of early retirement the most difficult. You are used to having your time filled, whether you want it to be or not, for a good part of the week by your job or business. Suddenly having 24 hours per day of unstructured time to fill may seem a bit overwhelming. This chapter will help you plan your early retirement so that you transition smoothly into your new life. I describe how we made the transition and how that might work for you too.

Chapter 17– Retirement or Merely A Respite?

Retiring young will give you control—of your time and of your life. But frankly, not everyone is going to be able to constructively fill 24 hours a day, seven days per week with meaningful activities. This may be an issue for those who are used to working 40, 50, or 60-plus hours per week and have never developed sufficient hobbies or other leisure activities to adequately replace those hours. If that turns out to be true for you, go back to work.  However, depending upon how many activities you have found that you do enjoy, maybe part-time work will fill the gap.

Should you decide to return to work after attempting early retirement, what concerns might you have? You need to consider those possibilities before deciding to retire young. If the ramifications within your career field could be significant, then you need to take more time to think through those issues. This chapter covers the issues that need to be considered prior to retiring young and the advantages that downshifting might have rather than giving up full-time employment completely.

Chapter 18 – The Choice

Early retirement is not for everyone. Some people genuinely enjoy the work they do while others find the money and/or the challenge of their careers unrivaled. There are those who would like to retire early but who cannot make the commitment to simplify their lives, embrace financial self-discipline, and invest wisely. And there will always be some who simply see today more clearly than they see tomorrow. If you derive a high level of satisfaction from your job or career, then by all means, continue doing what makes you happy until you no longer have that passion and drive. But when the time comes that going to work day after day is a chore, not a joy, you will want to be financially able to either walk away altogether, or at least cut back to part-time work doing something you find more to your liking. On the other hand, if working full-time is already surpassed by nearly everything else on your list of preferred things to do, then the time to begin planning for early retirement is now.

This chapter presents guiding principles for retiring young that we have successfully utilized for years and it is the only chapter that specifically addresses retiring with children or other dependents. Retiring young is a choice many individuals have the opportunity to make. By the time you have finished reading this chapter, you should be able to make your choice.

Appendix

The Supplemental Reading section includes 27 additional books and 37 Web sites that the author recommends for guidance in planning your early retirement. 

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You CAN Retire Young: How to Retire in Your 40s or 50s Without Being Rich by Larry Ferstenou

Copyright © Larry Ferstenou, 2001 - 2004  All Rights Reserved

Monday March 15, 2004